Sterling starts the week close to its strongest against the euro in around ten weeks, while the dollar’s recent rally has lost steam after a surprisingly weak US jobs report on Friday. With little major UK data due, this week’s attention turns to what central bankers say rather than what the numbers show: the Federal Reserve’s minutes on Wednesday, and a run of Bank of England speeches that includes Governor Andrew Bailey on Thursday. Below, we look at what could move each pair over the next week or two.
Latest market insights:
Pound to euro: sterling’s strong run meets a test of Bank of England intentions
- Sterling gained around 0.9% against the euro last week, its biggest weekly rise in months. Two things helped. Worries about the finances of some heavily indebted eurozone governments weighed on the euro, and hopes of closer UK-EU ties, after comments from Prime Minister Andy Burnham, offered the pound some support. A growing expectation that the Bank of England could raise interest rates again before the year is out, helped by UK growth for the second quarter being revised up to 0.5%, added to the picture.
- This week, several Bank of England policymakers are due to speak, including Governor Andrew Bailey on Thursday. Last month’s 6-3 vote to hold rates showed a divided committee, so markets will listen closely for any sign that more members are moving towards a rise. Comments pointing that way could support sterling further. A more cautious tone could take some of the shine off its recent run.
- The euro has its own story. Eurozone inflation jumped to 3.8% in September, its highest in three years, driven mainly by energy costs, and the European Central Bank has already raised rates twice this year. On Thursday it publishes an account of its September meeting, which could give a clearer sense of how willing policymakers are to go further. Stronger signals could help the euro recover some ground against the pound.
- Looking to next week, UK economic growth figures for August are due on Thursday 15 October. Stronger numbers could add weight to the case for a Bank of England rate rise and support sterling, while weaker ones could do the opposite.
- For anyone buying a property in Europe, a 1% move against you on a €400,000 purchase would mean finding an extra £3,400, that is a significant sum to have to find at short notice. This is exactly the kind of situation our currency specialists help clients plan for. Rather than trying to guess which way the market will move, you can fix your exchange rate in advance for a future transfer date through a forward contract, or set a target rate you agree with through a rate order, so that you know in advance what you will need to budget for. There may be a deposit requirement for some of these arrangements. Our team can talk you through how each option works and whether it suits your situation. Call us on +44 (0)204 506 5672.
US dollar to euro: the dollar’s rally pauses, with the Fed minutes next
- The dollar’s three-week rally paused on Friday after US employers added just 29,000 jobs in September, well short of the roughly 90,000 economists expected. Unemployment edged up to 4.2%, and earlier months were revised lower. Markets quickly scaled back their expectations of another Federal Reserve rate rise later this month, although one by December is still widely expected.
- On Wednesday the Fed publishes minutes of its September meeting, the written record of the discussion when rates were raised. One thing to bear in mind is that they pre-date Friday’s jobs report, so they show what officials were thinking then rather than now. Even so, they could show how many policymakers want to keep raising rates, and a firm message could revive the dollar’s strength. A more patient tone could extend its pause.
- The euro remains near a 16-month low against the dollar, and the US-Iran standoff remains a wildcard. Any new developments around the Strait of Hormuz could move oil prices and, with them, expectations for inflation and interest rates on both sides of the Atlantic.
Pound to US dollar: steadier after a difficult month
- Sterling fell more than 2% against the dollar over the past month, its biggest monthly fall in nearly a year, as the dollar strengthened on the Federal Reserve’s rate rise and expectations of more to come. It steadied on Friday after the jobs report cooled the dollar.
- This week, Wednesday’s Fed minutes are the main risk for this pair. A firm message on further rate rises could strengthen the dollar and weigh on sterling again, while a more patient tone could give the pound room to recover. Thursday’s Bank of England speeches offer the other side of the picture. Next Wednesday, US inflation figures for September are the next big test for the dollar, and could move this pair either way.
What to watch this week:
Wednesday 07 October:
- Minutes of the Federal Reserve’s September meeting, a written record of the discussion when US rates were raised.
Thursday 08 October:
- Bank of England Governor Andrew Bailey speaks, one of several policymakers due to speak this week.
- The European Central Bank publishes its account of its September meeting.
Coming up next week:
Wednesday 14 October:
- US inflation figures for September.
Thursday 15 October:
- UK economic growth figures for August.
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.
