Sterling weakened by up to 1% against major rivals yesterday before and after the Bank of England (BoE) announced the first pause in interest rate rises since November 2021.
Against the euro, sterling hit its lowest since May and against the US dollar its lowest since last March.
This morning it has weakened further against the US dollar, but strengthened on the euro as a blizzard of new data continues to shift the dials.
From yesterday, however, the key interest rate stays at 5.25%. This follows on from the surprise fall in UK inflation as revealed on Wednesday, and the US Federal Reserve (‘the Fed’) keeping its own interest rate on hold at 5.5%.
However, like the Fed, which pointed to a robust US economy and said that it felt confident in the economy being able to withstand more monetary tightening if required later in 2023, governor of the Bank of England Andrew Bailey said: “Inflation has fallen a lot in recent months, and we think it will continue to do so. That’s welcome news. But there is no room for complacency. We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that.”
In further economic news, this morning we have had a much more positive reading for optimism in the UK, with the GfK Consumer Optimism coming down to -21. Although still negative, it is the best reading for over 18 months.
Retail sales also recovered, growing 0.4% in August as the sun came out. This, nevertheless, represents a fall of 1.4% year on year, which is more of a reduction than the markets predicted.
Interesting news from Europe, where a flash reading for the Purchasing Managers’ Index (PMI) shows French business leaders’ optimism collapsing, well below the level expected, while Germany’s has improved. See our EUR round-up for more details.
In business news, the real life Succession took a new direction, with Rupert Murdoch stepping down as chairman of Fox and News Corp and giving the reins to his eldest son, Lachlan.
In politics, the Conservative Party has seized on their opposition leader Sir Keir Starmer’s comments about wanting closer ties with the EU. Starmer had said: “We don’t want to diverge, we don’t want to lower standards,” which levelling up secretary Michael Gove said was tantamount to wanting to: “return us to the EU effectively.”
We can expect more of this, with an election now only a year or so away.
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.
