Economic data continues to dominate the currency markets in a week with two interest rate decisions – from the Bank of England (BoE) and the US Federal Reserve (“The Fed”).
Yesterday the pound hit its best against the US dollar since the first week of July, while bumping along against the euro much where it has been since falling from those heady days of early summer when it was up to 4% stronger than today.
This morning it was the turn of UK unemployment and earnings. Unemployment remains at 4.7% – still at its highest since the end of the pandemic – and earnings increased on an annualised basis by 4.8%, a little down from last month. So far this looks to have had no effect on exchange rates.
Ordinarily it would be worries about high unemployment that exercised the leading economic minds in the country as inflation is brought under control. But with earnings still increasing on average by almost 5%, this looks to be scuppering the attempt to get inflation down from its current 3.8% back to the BoE’s target of 2%.
The BoE’s unwillingness to lower interest rates further, while so much inflationary pressure remains in the economy, is helping to support sterling, while the near certainty of The Fed cutting America’s interest rate has helped to weaken the US dollar yet further.
Tomorrow morning it will be the inflation figure for the UK, and while no great change is expected from the current 3.8%, continued high inflation is only going to make more problems for the government. Inflation was 2.2% when they came into office.
Still, it’s not just the government suffering setbacks. A junior shadow minister and MP defected to Reform from the Conservative opposition yesterday, with suggestions that he won’t be the last.
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