Sterling cannot hold recent highs

Jeremy Thomson-Cook
Jeremy Thomson-Cook 12 October 2021

GBP: Consistent strength is lacking 

EUR: ECB speakers unlikely to help the euro 

USD: Quiet day ahead of Fed minutes tomorrow 

Sterling 

Sterling was not able to hold onto all of its gains yesterday, sliding lower over the course of the day. Without a major news story this move seems to be more down to markets thinking that the Bank of England either won’t hike interest rates next month or will do but it is a policy mistake given the state of the UK economy.


Sterling’s strength is flagging already and with all the issues that the UK economy is facing currently it is solely these rate expectations that is keeping the pound from deteriorating further. We therefore think that sterling downside risk is under priced at the moment and are looking for a 1-3% move lower in GBP by the end of the month.


Brexit headlines may also have an impact on sterling today ahead of a speech by Lord Frost in Lisbon which will tear into the Northern Ireland protocol. The very same protocol agreed by this government only a few years ago.

Euro

Today is all about ECB speeches with members in favour of higher rates speaking this morning with ECB President Lagarde and Chief Economist Lane – who are most certainly are not in favour of higher rates – speaking this afternoon.


So far the latter pair have had the run of things and hence the euro being at its weakest level on a trade-weighted basis since May of last year.

We don’t see that improving too much anytime soon.

USD

With inflation and minutes from the FOMC tomorrow, today will likely be a quiet day for the US dollar. That being said, we expect that the dollar will continue to be bought on dips – like we saw yesterday – amid the overall atmosphere of US outperformance and risk measures rising.

Elsewhere

Rising commodity prices have been a booster for currencies such as the Australian and New Zealand dollars but with that narrative now shifting to a more persistent inflation issue, that support is starting to weaken.


Equity markets are also weakening across the board this morning, and this is in turn not helping riskier currencies.

Market rates

Euro

€1.176 ↓

US dollar

$1.359

Australian dollar

$1.847

South African rand

R20.41

Japanese yen

¥153.9

Have a great day. 

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