By Tuesday’s end, there didn’t appear to be much movement between the pound, dollar and euro, with only 0.2% between them. However, this hides that the dollar had been riding high through the day only to take a big dip after the US government shutdown.
After Congress failed to reach a budget agreement, the US government entered a shutdown, its first in seven years. The move threatens hundreds of thousands of federal jobs and billions in lost output. The Republicans are also expected to use the shutdown as cover to layoff thousands of workers.
The shutdown also means key reports, such as Friday’s labour data, are likely to be delayed, making it harder for analysts to assess the strength of the US economy. This comes at a critical time, as recent reports have revealed a growing crisis in the US jobs market, and delays in data releases will reduce the information the Fed uses to decide on interest rate cuts.
Meanwhile in the UK, a new survey of business leaders shows declining confidence in the UK economy. Chancellor Rachel Reeves gave her strongest indications yet that there will be tax rises in the autumn budget. Though, with nearly two months to go until the details are read out in parliament, there is still plenty of time to speculate on its contents.
In Europe, new data revealed a rise in French and German inflation, though Italy remained steady. Later today a flash of EU inflation will show how the block is managing to keep a grip on prices. While, a 2.2% increase is expected, it’s not expected that this will lead to an interest rate increase at the next meeting of the European Central Bank.
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