Sterling takes a pounding


Sterling takes a pounding

The British Pound has taken a beating in the last week as markets have taken a sour view of the new UK Chancellor's mini-Budget. On a trade-weighted basis, against other currencies, Sterling has tumbled by 4% in the last two days and by over 14% year to date. The Bank of England may now have to consider the best way forward, with calls for the Monetary Policy Committee to meet sooner than scheduled in order to issue an emergency rate hike growing. In the week ahead, several MPC members will speak, which could create some movement for the Pound. Meanwhile, the UK's final Q2 growth numbers will also be released.  


Heading lower versus the US Dollar

The Euro is another currency to have continued its downtrend versus the US Dollar, having softened by 3.5% since the start of last week. In Italian politics, Giorgia Meloni will head the next coalition government after gaining 44% of the votes. Still, the Euro's reaction has been relatively muted, despite the new government expected to be the most right-wing since WWII. In terms of data, one of the main focal points in the week ahead will be inflation figures out of the Eurozone, which are expected to break more records. Such readings could encourage the European Central Bank to make a larger rate hike. Markets currently anticipate a 50 basis point hike. 


US Dollar strength continues

The GBP/USD exchange rate has dropped by more than 6.0% following the UK's mini-Budget. After registering its most significant intraday drop since March 2020, talks of Pound parity against the US Dollar are gaining momentum. The US Dollar has been a popular choice following the US Federal Reserve's decision to hike interest rates by 75 basis points last week. With further tightening expected, it's unlikely the US Dollar will weaken in the near term. However, the swift rate of hikes is likely to cause some economic discomfort, meaning future data releases will be closely watched. Fed Chair Jerome Powell is expected to speak this week, and inflation readings will be out towards the end of the week. 


GBP/AUD and GBP/NZD falter

Last week, the Pound to Australian Dollar exchange rate fell by 2.6%, while Sterling dropped by a slightly lesser 1.4% versus the New Zealand Dollar. The Australian Dollar has also come under recent pressure against the US Dollar as riskier currencies struggled following the Fed's interest rate hike. In the week ahead, Australian Retail Sales numbers will be out, as well as New Zealand Building Permits and Business Confidence stats. These data points could have a moderate influence on the Kiwi and Aussie Dollars. 


Soft landing? 

Last week, the Pound fell by 3.1% against the Canadian Dollar, as Sterling softened across the board. However, questions have been raised over the Bank of Canada's ability to pull off a soft landing for the economy given the Federal Reserve's hawkish shift last week. Canadian inflation data came in below expectations last week, showing a 7.0% rise in August, less than the 7.6% July increase and 7.3% forecast. In the week ahead, Canadian growth data will be released, as well as earnings stats. 

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