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Foreign Exchange Analysis ~ 21 August 2023


GB Pound

What happened last week?

While inflation fell back, wages soared in the UK adding to the complex economic mix and bolstering sterling.


What to watch for in the short-term?

Wage price rises and a sizeable increase in take home pay are things that the Bank of England has been particularly worried about this year following CPI’s rise to over 10%.


Last month’s numbers were affected by one-time increases in pay for NHS workers and therefore there is a level of distortion that the Bank of England may take the opportunity to look through before handing down further rate increases at their September meeting. In the meantime, short-term rates at 4.5% should keep a slight bid in sterling.


What about the coming months? Sterling strength is still something that we think will be seen through to the end of the year but it looks like gains against the euro may be easier to come by than against the USD.


Calendar

Wednesday 09.30 BST | UK PMIs

Friday 00.01 BST | UK Consumer Confidence


US Dollar

What happened last week? Ongoing high short-term rates in the US alongside a poor bid in equity markets kept the dollar in demand. What to watch for in the short-term? The USD’s positioning as a currency for all climates is not allowing many to make much headway against it. Moves in US Treasury markets suggest that the market is positioning itself for higher rates and a higher resting point for interest rates on a longer-term basis than originally thought. Alongside Jerome Powell’s speech at the Jackson Hole Economic Symposium this weekend, the outlook for the USD can be brighter if ratesetters in Washington believe that inflation is down but not out. What about the coming months? Jackson Hole should set the scene with expectations of rates over 5% driving higher USD Calendar Wednesday 14.15 BST | US PMIs Friday 15.05 | Powell Speech



Euro

What happened last week?

Risk aversion in China and growth concerns locally made sure that the single currency couldn’t find upside last week.


What to watch for in the short-term?

The prospects for the single currency have dimmed in recent weeks and while the outlook is nowhere near as dark as it has been, the shine has very much been taken off the recovery in the past fortnight.


Europe’s trade ties to China are obvious and well known but the continents main import from the Far East at the moment seems to be uncertainty. With that and US Treasury yields looking quite so perky, you cannot rule out further dips in EURUSD.


What about the coming months? Lower consumer and business confidence in the Eurozone looks set to continue heading into the end of the year with this week’s PMIs particularly important.


Calendar

Wednesday 09.00 BST | European PMIs

Friday 20.00 BST | Lagarde Speech



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