Following significant movements on Monday, the pound, dollar and euro held their ground on Tuesday, with less than 0.2% change between them. The euro was slightly ahead, up 0.13% on the pound and just under 0.1% on the dollar. Clearly, however, there was very little in it.
Following a rebellion of Labour MPs, the UK government passed a much-reduced welfare cut on Tuesday evening. While this means recipients of personal independence payments will still receive their full benefit, it does mean Chancellor Rachel Reeves now needs to find an additional £2.5bn in her autumn budget. Many analysts are convinced Reeves will only be able to make up the shortfall by raising taxes.
However, with a softening jobs market in the UK and a decline in pay increases, Bank of England Governor Andrew Bailey indicated in an interview on CNBC that this may pave the way for an interest rate cut. The key question is whether these changes will lead to lower inflation. Current predictions are that the Bank will cut rates next month.
Meanwhile, in US news, Chair of the Federal Reserve Bank Jerome Powell has explicitly said his delays to interest rate cuts are down to President Donald Trump’s tariffs. Powell says that the US economy is healthy, with low inflation and unemployment rate, but with the highly uncertain impact and timeline of the tariffs he decided to put interest rate cut decisions on hold.
Trump has put immense pressure on Powell to make interest rate cuts and has threatened to have the Chair replaced. That pressure may increase as yesterday brought the news that US job openings rose by 374,000, well above market expectations.
With the pause on US tariffs due to expire next week and with only one completed trade deal on the table, the uncertainty that has delayed Powell’s decision is only set to continue.
There is a somewhat rosier picture in the EU, where inflation is now bang on the bloc’s 2% target. European Central Bank chair Christine Lagarde was quick to strike a humble tone, saying “I am not saying ‘mission accomplished’, but I say ‘target reached’, OK.”
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