Steering the UK economy

GBP

Steering the UK economy

The Pound has regained some of its losses versus the US Dollar in recent sessions, re-testing the $1.17 level on the back of news that new Prime Minister Liz Truss could inject some fiscal support into the system amid climbing energy bills. However, the Pound may falter if UK borrowing spills over into the latter half of 2023. Recent data has shown that the UK recovered slower than anticipated from the extended June bank holiday. With another bank holiday on the cards this month, there are more concerns that it could slow growth, pushing the UK closer to recession. However, it's hoped the suggested energy caps by Truss could help to bring inflation lower, and go some way towards steering the UK away from an economic downturn. In the rest of the week, significant UK labour market and inflation stats will reach the market and could influence the Sterling exchange rate. 

EUR

Hawkish expectations

The Euro has gained on the back of expectations of more aggressive monetary tightening from the European Central Bank, following a 75 basis point interest rate hike last week, and climbed by around 1.0% versus the US Dollar in early trading today. Euro gains have also been supported by reports that Ukraine has been making positive progress in retaking Russian-occupied regions in the eastern part of the country. In the week ahead, ZEW's Economic Sentiment Index will be released, as well as inflation stats, which could impact the way the Euro trades. 

USD

Eyeing inflation

US Dollar weakness has continued this week, following a rise in risk sentiment ahead of US inflation data out tomorrow. Another weak CPI print is expected by economists, which will beg the question of whether another 75 basis point hike will be warranted the next time the Federal Reserve meets on the 21st of September. In the week ahead, US Retail Sales figures, Industrial Production, and Consumer Sentiment stats will all reach the market and could influence the US Dollar. However, as mentioned above, the critical data point markets will be keeping an eye on this week is inflation. 

AUD and NZD

Hiking to a seven-year high

Last week, the Pound appreciated against the Australian and New Zealand Dollars on risk-off sentiment and additional clarity from Britain's new Prime Minister and energy bill response. Meanwhile, the Australian Dollar stumbled, eyeing a two-year low versus the US currency, after Aussie growth data was revised lower and US Dollar strength continued. The Reserve Bank of Australia also hiked interest rates by 50 basis points last week, taking the headline rate to a seven-year high. 

In the week ahead, Australian Consumer Confidence will be released, as well as New Zealand's growth stats. Australian labour market figures will also make their way onto the market, with all of the above releases having the potential to influence the Aussie and Kiwi Dollars.

CAD

Weaker labour market

The Pound climbed against the Canadian Dollar last week, while the Loonie also softened versus the US Dollar on Friday in response to labour market data. There had been some optimism surrounding the Canadian Dollar earlier in the week, as the Bank of Canada had hiked interest rates by 75 basis points taking headline interest rates to 3.25%. Markets are anticipating rates as high as 3.75% in Canada by the end of the year. However, the enthusiasm ebbed at the end of the week when unemployment numbers climbed to levels last seen in February this year. Employment also resided in negative territory, despite forecasts for a positive reading. It's a very quiet week ahead for Canadian data, meaning the CAD exchange rate could be sensitive to geopolitical developments and oil price changes. 

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