Matthew Mcclure
October 11, 2021

Euro Falls as Sterling & Dollar Pick up from Chaotic Week

GBP

Sterling settled in a strong position off the back of a chaotic previous week that saw GB PEUR reach the highest level in 18 months to 1.179, bar one week in August, and GBPUSD also recovering above 1.36. The UK has been struggling with an energy crisis which saw fuel stations across the country close with lack of fuel, as a result of HGV driver shortages, and record gas prices for households too. The Petrol Retailer’s association stated on Friday that only 71% of forecourts in the Southeast of England, and have blamed lack of government intervention, as well as having to switch to E10 petrol, as the cause. Gas prices also soared 40% to 400p per therm last week too, but has since decreased 10%, as a result of Russian President Vladimir Putin’s intervention with gas exportation from Russia.

The Bank of England will also be keeping an eye on the energy crisis as inflation currently sits at 3.2% with forecast to exceed 4% by the end of the year. An interest rate hike could be on the cards this year if inflation remains at these levels, as mentioned recently by the BoE Governor Andrew Bailey, but has stated that the Bank must remain vigilant if this rise is to be transitory or here to stay. The Fed and ECB have admitted the same sentiment to their respective highs, but the BoE seems ahead of the pack and could provide some strength for Sterling if the hike is made before the others.

Looking forward in this week we have the Claimant Count Change and ILO Unemployment Rate releases on Tuesday. Any increase in these releases will be seen as a negative for Sterling as it implies a worsening labour market and, in effect, economic situation. We will also get a better idea of the industrial market in the UK with Manufacturing and Industrial Production data releases later in the week, as well as GDP figures month-on-month too. A positive reading will be bullish for Sterling but expect the ongoing energy crisis development, among other dominating news in the UK, to dictate the currency’s performance this week. Please get into contact with your account manager here at Lumon to discuss any Sterling exchanges.

EUR

Euro fell significantly against its counterparts last week as the global energy crisis has started to disrupt Europe. The world’s most traded currency pairing, EUR USD, dropped almost a cent on Tuesday, with EURGBP dropping below 0.85 for only the second time since the pandemic began. Record gas and electricity prices hit the continent heavily, with Russia struggling to meet demand and a lack of storage among the European countries to see them through winter. Russia did come to the rescue last week though when President Putin offered increased supplies to help Europe after gas prices increased by 40%, which then saw a decrease of 10% after his comments. The weather could be the main factor in this fight, however, as any drop in the temperature in the coming weeks will knock the resilience of the European households flat. Simone Tagliapietra, a senior at the Bruegel economic think tank in Brussels estimates that the “total increase in consumer costs across the EU at as much as 100 billion euros this winter.” French President Macron has pledged 580 million euros worth of ‘energy-check’ subsidies to the poorest households in France, on top of more than 4 billion euros for the gas price ceiling.

Christine Lagarde, President of the European Central Bank, has reiterated that the Bank will not overreact to the temporary burst of inflation by withdrawing stimulus or hiking interest rates. Inflation levels sit at 3%, as per recent reports, which the ECB predict will fall naturally in 2022 when the economy is operating at pre-pandemic levels, and meet their end of year target of 2%.

In the week ahead, the European Council Meeting takes place on Friday and involves the Heads of State and Government of member countries. The members will be discussing how best to deal with the ongoing energy crisis

USD

The US dollar has been boasting it’s ‘safe-haven’ title recently while other currencies have been at the mercy of energy crises and soaring inflation in their respective economies, but that shine might be wearing off as USD rates began to fall off at the tail end of last week.

The figures for the Nonfarm payroll data severely underwhelmed with less than half the expected jobs created in the previous month. Many analysts expected a figure of around 500,000 jobs to be created in Nonfarm related sectors, which would have seen a significant increase from the previous report of 235,000. The data released a figure of 194,000 and seemed to dent US dollar’s armour late on Friday, with GBPUSD gaining half a cent immediately after this release.

Federal Open Market Committee marked their interest in the September labour figures and how the result will sway their decision on the quantitative easing programme. The Fed previous stated that they will begin tapering the programme towards the end of the year but, with this recent data release portraying that the economy may not be recovering as once thought, stimulus may still be required for a longer period. The FOMC minutes are released on Tuesday and could provide some positivity for the Greenback if the sentiment is hawkish. This release is made 3 weeks after the original meeting, however, so recent developments may drown any kind of sentiment as out of date.

Consumer Price Index, Retail Sales, and Michigan Consumer Sentiment Index data are all set to be released this week, which will give a better idea of the retail sector in the US. The consensus among analysts is that there will be little to no growth, adding to the Dollar’s woes in what could be a difficult week for the currency.

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