Following a tricky few days for the pound last week around the budget, the week ahead has even more potential pitfalls. The positive news is that GBP/EUR is currently only down on last Monday by 0.7% and there is no loss against GBP/USD.
The dollar was hit on Friday afternoon by the worst Non-Farm Payrolls (NFP) reading for close to four years, with just 12,000 jobs added in October. That’s a drop from close to a quarter of a million new jobs in September. ISM manufacturing PMI also fell sharply to its lowest for 15 months.
As the NFP numbers may be artificially low due to strikes and two hurricanes, they failed to damage the US dollar as much as might be expected. However, that was the last major economic update in the USA before election day tomorrow, and Trump has been vociferous in claiming that he was better for the economy. Pre-election jitters seem to taking the US dollar downwards, with the US Dollar Index around 0.5% down overnight.
Also coming out on Friday was a deceleration in the speed of house price rises in the UK. The Nationwide House Price Index showed the rate of increase dropping from 0.6% in September to just 0.1% in October. The Nationwide’s chief economist was upbeat, however: “Housing market activity has remained relatively resilient in recent months, with the number of mortgage approvals approaching the levels seen pre-pandemic, despite the significantly higher interest rate environment.”
That interest rate environment is expected to ease slightly on Thursday, with strong certainty in the markets that the Bank of England will cut rates by 0.25%. The next question is, will they cut again at their next meeting just before Christmas? If there are strong hints that they will, sterling could well end the week heading south. However last week’s budget appears to have put that likelihood in further doubt.
In British politics, the Conservative Party elected Kemi Badenoch as leader. After growing up mainly in Nigeria, then working in McDonalds and New Look before studying computer systems engineering at Sussex University, she worked as a systems analyst at the Royal Bank of Scotland and later at Coutts. She became an MP in 2017. Her husband Hamish, incidentally, has worked at Deutsche Bank for 15 years and is listed on LinkedIn as Global Head, Future of Work and Real Estate Transformation.
This week could be the most critical for sterling in a year or two, so make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 7898 0541 to get started.
