It has been a dramatic few days. Friday’s US jobs report delivered the first negative payroll reading of the economic cycle, with the US economy shedding 23,000 jobs in July against an expectation of 80,000 jobs added. At the same time, the Middle East situation took a turn for the worse over the weekend, with Iran targeting an ADNOC tanker in the Strait of Hormuz and issuing fresh demands that the Strait will not reopen until the US corrects its behaviour. Markets are absorbing both stories this morning, and there is plenty to watch this week.
Latest market insights:
Pound to euro:
Sterling is holding firm near a one-year high
- The pound has remained resilient against the euro, supported by the interest rate gap between the Bank of England and the European Central Bank. With Bank Rate at 3.75% against the ECB’s 2.25%, sterling continues to offer a yield advantage that has kept GBP to EUR near its strongest level in over a year. Friday’s weak US jobs data has also taken pressure off the dollar globally, which has indirectly supported the euro. However, the fresh Middle East escalation is a complicating factor. Rising tensions tend to push energy prices higher, which adds to inflation, which could delay any easing in interest rates across Europe and the UK.
- For property buyers, a 1% move against you on a 400,000 euro purchase equals 4,000 euros straight off your budget. With the pound near a one-year high but a volatile backdrop, this could be a good moment to speak to our team about locking in your rate. Call us on +44 (0)204 506 5672.
US dollar to euro:
The dollar has weakened sharply after the jobs shock
- Friday’s payrolls data came in lower than any forecast by any economics group, with the US economy losing 23,000 jobs and prior months revised down by a further 103,000. That has significantly dented the case for a Federal Reserve rate hike in September, reducing safe-haven demand for the dollar and giving the euro room to recover. The euro has picked up ground against the dollar as a result. However, the fresh Middle East tensions this morning are providing some support to the dollar as a safe-haven currency, meaning this morning’s picture is more mixed than Friday’s immediate reaction suggested.
Pound to US dollar:
The pound has strengthened against a softer dollar
- Sterling has pushed higher against the dollar following Friday’s jobs shock, as markets scaled back bets on a September Federal Reserve rate hike. Temporary layoffs in the US jumped to 921,000 in July, a level that has historically preceded a sustained rise in unemployment, adding to concerns about the broader US economic outlook. A weaker US economy reduces the case for higher interest rates, which weighs on the dollar and supports sterling.
What to watch this week:
Tuesday 12 August:
- UK jobs data: A strong reading would support the case for a Bank of England rate rise and could push GBP to EUR higher. A weak reading could temper some of sterling’s recent strength.
- US CPI inflation data for July: After Friday’s jobs shock, this is the week’s most important release for the dollar. If services inflation re-accelerates alongside the softer payroll trend, the Fed faces a difficult trade-off that could add significant uncertainty to all three currency pairs.
Wednesday 13 August:
- UK inflation figures for July. A higher-than-expected reading would reinforce the case for a Bank of England rate rise in September and give sterling a lift. A softer reading could ease those expectations.
Middle East:
- Iran has said the Strait will not reopen until the US meets new demands. Any further escalation in attacks on shipping would push oil prices higher, add to inflation expectations globally and increase pressure on central banks. A diplomatic breakthrough would ease those pressures.
If you have an international transfer coming up in the next few weeks or months, for a property purchase, a pension payment, supporting family abroad, or any other reason, the events of this week are a useful reminder that exchange rates can move quickly, and not always in the direction you’d hope.
The good news is that you don’t have to simply wait and see what happens. Speaking with a currency specialist costs nothing and carries no obligation. They can talk you through your options, including spot contracts for transfers you need to make now, and forward contracts for transfers you’re planning further ahead, and help you understand how today’s rate movements might affect your specific situation.
Contact Lumon on +44 (0)204 506 5672 for a free, no-obligation conversation and discover what options you have available to help.
