The pound had a mixed Monday, strengthening slightly against the euro but shedding half a cent to the US dollar and moving close to its weakest since the start of August.
We just heard that unemployment in the United Kingdom remained at 4.9% in July, defying forecasts of an increase to 5%. That is likely to make the case for another hold at Thursday’s Bank of England meeting that little bit stronger amid growing calls for rate hikes to push back against inflation.
Across the Atlantic, the Federal Reserve also finds itself in the spotlight. Currency markets are expecting the first quarter-point hike in almost three years, although that decision is likely to draw the ire of President Trump just a few months out from the midterm elections.
Tech and AI stocks dropped across the world to start the week after calls for more oversight of frontier models and research. Both OpenAI and Anthropic urged pauses to prevent security breaches, a suggestion that China and the United States swiftly rejected.
Pressure is building around energy costs after the price of oil hit a four-month high of $108 to the barrel. Gas prices were also on the rise in the UK and Europe, yet analysts predicted the supply squeeze wouldn’t force prices quite as high as in 2022.
Finally, Sweden’s left-wing political bloc looks well placed to form the next government after its parliamentary lead widened to three seats yesterday. We won’t get the final results of a razor fine election until tomorrow, but Magdalena Andersson is expected to try and shore up her coalition even as leader of the right-wing bloc and current prime minister Ulf Kristersson attempts to stay in his post.
GBP: Earnings moderate
Average earnings including bonus payments in the United Kingdom increased by 3.9% in the three months to July, coming in slightly cooler than expected and down from last month's 4.2%. That outcome could ease the pressure on policymakers ahead of tomorrow’s inflation read, but it could also weigh on the pound should currency markets adjust their interest rate expectations ahead of Thursday's Bank meeting.GBP/USD: the past year
EUR: Rate rally fades
The brief tailwind provided by the European Central Bank’s decision last week petered out on Monday for the euro, which weakened against its main rivals. Another rise in this morning’s German consumer survey could offer the euro a bit of respite after a testing start to the week.GBP/EUR: the past year
USD: An uncomfortable milestone
The yield on ten-year US treasuries went past 5% for the first time since 2023 on Monday. Although it dipped back below shortly after, this has long been thought to be a key psychological barrier and the level at which AI companies (and therefore the US economy) would start to struggle. The timing is also bad for the dollar ahead of the Fed’s meeting tomorrow evening, framed by some as a test of its credibility.USD/GBP: the past year
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