Nearing the end?
New PM pressures
Sterling is ninth in August’s ranking of G10 currency majors, being saved from the bottom slot by the Swedish Krona. As the grim economic outlook continues in the UK, consumers have turned to credit card spending with an annual rate of borrowing that’s reached the fastest pace in 17 years this month. This means pressure has been increasing on the incoming British Prime Minister before it’s even been revealed who’ll end up in the role. A senior economist at the Resolution Foundation said that the new PM would need to ‘think the unthinkable’ to prevent ‘physical and financial damage to families across Britain’ this winter. The UK will print new data on mortgages, shop prices, and construction in the week ahead. Although these are unlikely to influence the Pound’s performance, they’ll add more colour to the economic outlook ahead of next Monday’s PM announcement—an event that will likely bring Sterling volatility.
Overall, the Euro hit 20-year lows last week as electricity and gas prices soared to all-time highs amid fears of Russia’s constricting of energy supplies and leading the Eurozone into recession. Last Thursday’s better-than-expected German GDP growth numbers provided some relief for the Euro Area. Still, German business sentiment deteriorated even further. Meanwhile, the release of the European Central Bank’s meeting accounts showed ‘intensified’ inflation concerns. The minutes implied that EU governments should step up in the face of recession ‘as they were better able to provide support to households and firms, leaving monetary policy to focus on inflation’ and the ECB’s mandate of price stability. This week is a busy one for the Euro Area in terms of economic data releases, with fresh figures due out on sentiment, inflation, and unemployment. With Europe facing escalating energy pressures, this week’s meeting of the Organization of Petroleum Exporting Countries (OPEC) will also be closely watched for commentary on the oil outlook, which could influence the Euro alongside commodity currencies like the Canadian Dollar.
USD strength continues
Sterling has fallen over 3.50% against the US Dollar in August in the face of continued Greenback strength. Last week, the US held its annual Jackson Hole Symposium from Thursday to Saturday, where the country’s central bank Chair Jerome Powell was joined by policymakers from around the world. Comments from Powell on Friday resulted in a boost for the US Dollar as he hinted at the summit that there’d be further interest rate hikes ahead. It was also announced last week that President Joe Biden would forgive $10,000 of debt for millions of former students in the US. Republicans have questioned the President’s legal authority to cancel debt. Still, Biden stated he’d ‘never apologize for helping working Americans and middle class, especially not to the same folks who voted for a $2 trillion tax cut that mainly benefited the wealthiest Americans and the biggest corporations’. However, a policy like this that could increase the US consumer’s spending power will likely create more headwinds for the Fed as it tries to put a lid on inflation. It’s set to be another busy week on the US economic calendar: new CB Consumer Confidence data is due out on Tuesday, with a slew of important labour market data set to be published in the coming days. As key indicators of economic health with the potential to influence central bank decisions, these readings could impact US Dollar performance.
AUD and NZD
Nearing the end?
Sterling has fallen 1.8% against the Aussie Dollar over the past week as UK manufacturing activity slumped to a 27-month low and services expanded at their slowest pace for 18 months. However, Australia posted better-than-expected Retail Sales figures yesterday, showing resilience from Aussie households in the face of continuing global economic turmoil. The reading followed disappointing data for manufacturing and services activity in the country that printed last week.
Meanwhile, the Pound has fallen 1.0% against the New Zealand Dollar since the start of last week, despite the Governor of the Reserve Bank of New Zealand hinting at the Jackson Hole Symposium that the central bank may be coming to the end of its aggressive interest rate hiking cycle. The country also published disappointing Retail Sales figures last week. Looking ahead, the coming days will bring the latest ANZ Business Confidence data and quarterly Overseas Trade Index reading, offering more detail into the country’s economic outlook.
Near 2013 lows
Sterling hasn’t fared any better against the Loonie this past week, with the Pound to Canadian Dollar exchange rate down 0.9% and testing lows not seen since March 2013. In inflationary news, Canada learned last week that it would be just one of seven regions across the globe to see a price hike in the cost of the PlayStation 5 games console. Despite gaming companies benefitting from a pandemic boom, soaring costs and inflationary pressures have been piling up. Price hikes have been outlined for each country on the list, with a PS5 set to cost extra 20 Dollars in Canada as Sony passes the burden of rising expenses onto consumers. Tomorrow, the latest Canadian GDP growth data will be released, with building and manufacturing figures to follow ahead of potentially influential OPEC meetings and the Canadian market’s close for Labor Day next Monday.
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