Johnson speech to be short on sterling impact

Jeremy Thomson-Cook
Jeremy Thomson-Cook 06 October 2021

  • GBP: PM speaks at 11.30am
  • EUR: Commodity prices rising 
  • USD: Payrolls crucial on Friday

Sterling

PM Johnson speaks at the Conservative party conference later today in a speech that he hopes will set up his vision for a post-pandemic UK. Chancellor Sunak’s speech on Monday was woefully light on specifics and while moves like a bump in the national living wage are being briefed, we expect this speech to also lead with style more than substance. 
Subsequently the market impact should be minimal.

In the coming months and years however, the path of government finances are going to be very important and will have a greater bearing on the pound than they do currently. Tax rises and this government are not natural bedfellows after all.

Johnson is due to take to the stage at 11.30am.

Euro

The euro is starting to feel the effect of higher commodity prices with European businesses now having to deal with the weakest level of the currency since the beginning of the Covid-19 pandemic. Inflation expectations are rising in the Eurozone but we remain unconvinced that this will translate into movement from the ECB.

We think that this in turn will lead to a weaker EUR moving forward.

USD

The dollar has been happy to give up some of its recent strength in the past few days although we do not believe this is the beginning of a new down trend for the currency. We are in a bit of a holding pattern until Friday’s payrolls report is published and digested, and from there a wider trend of dollar performance will be put together.

For now, as long as equities are rising, the dollar is set to decline slightly.

Elsewhere

Whilst more of a sterling story than elsewhere commodity prices continue to rise, boosting the currency of commodity producers but hurting those who consume them. The price of wholesale gas in the UK rose to more than £3 a therm yesterday; typically, it trades around 50p.

Bill increases are coming, and if you are on a standard tariff with a utilities provider then I would expect bills to rise by around 30% next spring. Not great for those on low incomes or in older housing that may use more inefficient boilers/heating systems.

Market rates

Today's Interbank Rates at 08:40 against sterling. Movement vs yesterday.

Euro €1.173
US dollar $1.357 
Australian dollar $1.872
South African rand R20.58
Japanese yen ¥151.6 

Have a great day.