Truss becomes British PM

GBP

Truss becomes British PM

Last week saw a sell-off in Sterling as news of Ofgem’s energy price cap rise settled in, adding to a worsening economic outlook and further fuelling uncertainty heading into winter. However, just a few hours ago, Liz Truss was announced the new Conservative leader, and thus, Prime Minister for Britain. The Pound fell from the day’s high in the lead-up to the announcement, reflecting the scale of the challenge that awaits Truss and her new cabinet. The immediate market reaction was muted, with the result less relevant than the policies she will enact on her arrival at Number 10. Following weeks of discussion from the Truss camp on energy price action, developments on this front could influence Sterling’s performance over the coming days as she takes the helm. Still, this week will bring the Monetary Policy Report Hearings—where policymakers will testify on inflation and the economic outlook in the UK—alongside new figures on Retail Sales, construction, house prices, and Consumer Inflation Expectations.

EUR

Energy crisis worsens ahead of ECB announcement

The Euro was briefly boosted towards the end of last week as initial inflation readings for the Eurozone in July showed yet another increase, bolstering belief amongst investors that the European Central Bank will respond with a large interest rate hike. Germany’s central bank President called openly for a ‘strong interest rate hike’ in the monetary policy meeting this Thursday, with a backdrop of inflation that’s expected to rise further still. This week is already off to a challenging start for the Euro region, as gas flows from Russia have halted, leaving the European energy crisis in fresh catastrophe. In the wake of the headlines, the Euro tumbled against the US Dollar over the weekend. The ECB is expected to increase its headline rate by 0.75% for the first time ever on Thursday, making this a day to watch for Euro movement.

USD

Worst drop for GBP/USD since Brexit

The Pound to US Dollar exchange rate fell amid Sterling’s sell-off last week and continuing Dollar strength. In August, the British currency recorded its most dramatic monthly decline against the Greenback since the fallout of the Brexit Referendum in 2016. This comes as the US Dollar reached a 20-year high against its peers as it approaches three consecutive monthly gains. It’s a quiet start to the week in the US, with markets closed for Labour Day today. However, various Federal Open Market Committee members will be speaking throughout the rest of the week, and their comments will be highly scrutinised for any hints on the future path of monetary policy. Otherwise, the headline release in US economic data will likely be Tuesday’s ISM Services Purchasing Managers’ Index.

AUD and NZD

RBA announcement imminent

There was little influential economic data out of Australia and New Zealand last week, leaving the Pound to fall 0.1256 against the Australian Dollar and 0.7521 against the New Zealand Dollar as a result of its cost-of-living-induced weakness. This week, the latest Cash Rate decision from the Reserve Bank of Australia will be announced on Tuesday, with fresh GDP growth data to follow on Wednesday. RBA Governor Philip Lowe will speak on Thursday, and markets will be looking out for any commentary around the future path of monetary policy in Oz. It’s a quieter week for New Zealand’s economic calendar, but new figures due out for Commodity Prices, credit card spending, and Manufacturing Sales will shed light on recent economic activity in the country.

CAD

Interest rates above 4% to come?

Despite a lack of market-moving data in Canada last week, the Sterling to Canadian Dollar exchange rate dropped 0.7667 over the last seven days in light of the deterioration of the British currency. As in the US, today is the Labour Day bank holiday in Canada, but action will resume later this week. On Wednesday, the Bank of Canada will release its latest Overnight Rate and statement before the country prints some fresh labour market data on Friday. Markets expect a 0.75% rate hike from the BoC, with the Bank of Montreal’s Chief Economist suggesting recently that the central bank may need to drive interest rates above 4%. This prediction came in response to housing market data out of Toronto that showed property sales could be starting to pick up despite increasing interest rates.

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