Sterling and the euro enter September slightly weaker against the US dollar after a hawkish speech by the Federal Reserve’s Kevin Warsh ahead of the bank holiday weekend.
A relatively light economic schedule this week suggests a gentle start to autumn. However, with under two months to go until the Budget, as well as no sign of progress in securing the flow of oil through the Strait of Hormuz, there is every chance that the pound could be on the move between now and Friday.
As American markets looked for a commitment to tackling inflation, Warsh delivered. Noting that inflation had stuck above the Fed’s 2% target for 35 months on the trot, the new governor indicated the FOMC was not comfortable with cutting interest rates and would instead look to control prices as its first priority.
The curious annual tradition of revisions to American jobs data confirmed the economy had added almost 80,000 fewer jobs than previously estimated. That was actually a smaller downgrade than had been expected, with retail leading the fallers.
Unfortunately, the long weekend failed to yield progress between the United States and Iran. Things took a turn for the worse, if anything, as the two sides exchanged military strikes in the Strait of Hormuz for the first time in over a month. Brent crude was seen trading above $91 to the barrel this morning.
Finally, MPs return to the House of Commons this week after the summer recess. This morning’s news that supermarket inflation increased to 1.5% in August will add to discussions around the cost of living crunch, while Andy Burnham and his chancellor, John Healey, will be looking to manage the build-up to a challenging autumn Budget.
GBP: Tensions weigh on house prices
Average house prices increased by 0.2% last month, per Nationwide's monthly survey of the property market. The annualised rate of increase now sits at a comparatively cool 1.6%, highlighting the significant challenges households are facing both from an economic and credit perspective.GBP/USD: the past year
EUR: Well above target
Germany's annualised inflation rate reached 2.9% in August, the joint-highest monthly read since 2023, putting a bit of pressure on the euro in light trading yesterday. With inflation rising across the eurozone thanks mainly to soaring energy costs, it seems increasingly likely the European Central Bank will be forced to step in sooner rather than later.GBP/EUR: the past year
USD: Threading the needle
There wasn’t much breathing room for Kevin Warsh to get his message across on Friday, but he succeeded in giving the US dollar a boost and calming jitters in the bond market. Still, nobody is mistaking government intervention for a long-term fix. It will take more than that to guarantee stability in the months to come.USD/GBP: the past year
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