Sterling strengthened yesterday, following comments about inflation and interest rates from Bank of England (BoE) governor Andrew Bailey in a BBC interview. That encouraged the markets to think that UK interest rates could rise as high as 7% by March. However, US jobs data in the afternoon surprised the stock markets and curtailed sterling’s rise.
Against the euro, sterling came tantalisingly close to a fresh 11-month high before falling away in the afternoon session. However, against other currencies it held onto some of those gains. That included its strongest rate against the Australian dollar since May 2020, and close to its 15-month high against the US dollar.
Andrew Bailey was speaking to BBC Newsround, a children’s show, rather than to the FT or a government committee, but his message was clear: “I understand very much the difficulties that people face,” Bailey added. “Unfortunately this is how we have to get inflation down. If we don’t get inflation down, it gets worse and we’ll have to put up interest rates more.’’
In more stress for homeowners, the decline in the value of their homes has accelerated, according to the Halifax Building Society, which reports that the average home price has fallen by 2.6% in the past year. This is the largest fall since 2011.
Another negative, S&P Construction PMI surprised the markets by falling to 48.9 against an expectation of 51. Anything below 50 represents overall negativity. On the plus side, it remains higher than in France, Germany or Italy.
In business news, the FTSE 100 hit its lowest closing level of 2023, in common with other world markets, as worries grew of more interest rate rises from the US Federal Reserve. The prompt for this was the US unexpectedly creating nearly half a million new private sector jobs in June, more than double the expected number, leading to greater expectation of interest rate rises.
And finally, Meta launched its rival to Twitter. In response, Twitter boss Elon Musk launched a law suit saying that Threads had stolen Twitter’s idea. Given that he had himself tweeted a few months ago that the “geniuses” he had fired would find “their immense talent… in great use elsewhere”, he may have a point.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Personal Trader on 020 7898 0541 to get started.
