The Shanghai Cooperation Organisation pushes a dollar alternative, while weak US jobs data boost the euro and pound amid global economic uncertainty.
Market Recap:
The latest summit of the Shanghai Cooperation Organisation (SCO), held in the Chinese city of Tianjin last week, presented an alternative economic model for the world, fronted by China, India and Russia. The summit called for the development of an SCO development bank to undermine US influence and the primacy of the dollar.
At the moment, the dollar could do without the competition. Weak jobs data from the US helped the euro climb to its highest rate since mid summer, and it remains up over 5.6% on the greenback in the last 12 months. This was despite unexpectedly poor factory order data from Germany, the eurozone’s biggest economy.
The pound also strengthened after the US jobs data, though it had fallen by more than 1% earlier in the week on the back of figures showing UK government borrowing costs at a 27-year high. Signs of fragility in the UK economy weighed on the pound this week, but the cooling US labour market exerted the biggest influence on money markets.
Interest rate cut in US now likely
A weakened US labour market increases the chances of an interest rate cut this month, and could lead to the Federal Reserve (Fed) cutting rates again before the end of 2025. A long-expected rate cutting cycle now appears to be imminent.
By contrast, the European Central Bank (ECB) is likely to leave eurozone interest rates unchanged at 2.15% at its policy meeting this week. The UK’s mixed economic picture also makes an imminent interest rate cut – from the current level of 4% – less likely, with Bank of England (BoE) governor admitting considerable doubt about the timing of the next cut.
Coming Up:
The ECB’s monetary policy decision (Thursday) is the main focus this week, though a decision to leave rates unchanged is by far the most likely outcome. In the US, core inflation rate data (Thursday) could also influence money markets. UK GDP figures (Friday) will be keenly watched for clues to the underlying health of the economy.
