GBP: Covid risks rising
EUR: PMI numbers tomorrow
USD: Jobless claims later today
Sterling eventually shrugged off the weaker than expected inflation number yesterday with market expectations continuing to position for a rate hike at the Bank of England meeting a fortnight from now.
Yesterday’s inflation slip was a more a function of changes in restaurant pricing after the “Eat Out To Help Out” scheme last year and so while the headline number looked like a miss, the story remains one of higher prices and a tougher cost of living challenge to many.
Sterling’s increase will not offset that much; a 1.5% change in the value of the pound will only lessen energy import costs at the margin. The longer-term pressures on the UK economy, as evidenced by the increasing belief that the UK will need to lockdown as we get closer to Christmas to protect the health service, are still waiting to have an effect.
With the euro able to head off breaking below the 1.15 level against the USD in the past week, and equity markets helping riskier assets we expect the single currency to maintain range trading for the foreseeable.
Tomorrow’s preliminary PMIs from the European economy remain the most important indicators for the currency this week, with these likely to be the first pieces of economic data to be able to show just how much the recent surge in energy prices has cost manufacturing businesses in Europe.
It’s Thursday so it’s jobless claims day in the United States with the continued improvement in the US’s labour force seen as all important ahead of the next Federal Reserve meeting in November. Will the US reduce stimulus next month, or leave it until December? At the moment, the answer is very finely balanced.
More broadly, risk has had a good few days and the dollar is naturally on the back foot as a result. Investors seem to have finally put to bed their fears that the issues in the Chinese real estate sector will prove to be a systemic contagion event, and alongside buoyant commodity prices, equities have moved higher.
AUD has breached the highest level since July 6th this morning aided by those higher commodity prices and with volatility in markets at the lowest level for 2 months. We expect the AUD to remain supported as Covid becomes less of a story as the southern hemisphere heads into their summer.
Today's Interbank Rates at 08:38am against sterling movement vs yesterday
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Have a great day.