Economic Update
Stay informed about the latest economic developments in the UK, Eurozone and the US. Get insights into key indicators and currency trends in this comprehensive economic update blog.
Sterling continues to strengthen against major currencies
6 minute read02 September 2024
GBP
GBP continues to maintain its strength following the recent surge compared to other major currencies, most notably USD and EUR.
With the US dollar under intense pressure due to upcoming interest rate cuts in mid-September, the pound has been the currency of choice for many investors.
Prime Minister Keir Starmer's meeting with German Chancellor Olaf Scholz last week signalled the new Labour government's warming of relations with Europe. During a press conference following the meeting, Starmer announced a "once in a generation" UK-Germany treaty to rebuild a productive relationship between the two countries.
The treaty will be part of a wider reset with Europe, which is planned to be agreed early next year, with the news potentially benefiting the UK currency in the short term.
This week will be another quiet one in terms of economic data. On Wednesday, the Monetary Policy Report Hearings will take place, where Governor of the Bank of England, Andrew Bailey, and other members of the Monetary Policy Committee members testify before Parliament's Treasury Committee on inflation and the economic outlook. Then, on Thursday, the latest PMI data for the construction industry will be released. The figure is expected to dip slightly from last month to 54.6, from 55.3 in August.
EUR
The far-right Alternative für Deutschland (AfD) party in Germany has won the regional state election for the eastern state of Thuringia and also performed well in the neighbouring state of Saxony. In the clear rejection of the ruling coalition led by Chancellor Scholz, Germany follows the trend set by the French and UK elections this year in far-right parties gaining significant popularity.
The political uncertainty this will sow in Europe's largest economy is likely to weaken the euro if the polls continue to show a lack of support for the more centrist parties going into the federal election in September 2025.
Additionally, last week, there were a couple of inflation data point releases in the EU. On Thursday, the German Preliminary CPI monthly data was released. Markets expected inflation to fall to 2.1% from 2.3% in July, but it fell below expectation to 1.9%. The CPI Flash Estimate yearly data was released for the European Union on Friday, which saw inflation fall from 2.6% to 2.2%.
Both releases support the price in interest rate cut currently expected from the European Central Bank on Thursday, 12th September. It's Labor Day in the US today, giving the dollar a slow start to the week; however, the data calendar picks up again from tomorrow. On Tuesday, we will see the release of the ISM manufacturing data, followed by the JOLTS job opening data on Wednesday and ADP non-farm payrolls, unemployment claims, and ISM services on Thursday. This week's heavy-hitting economic data is the non-farm payrolls figures released on Friday at 1:30pm (UK time). Last month's significant miss for the non-farm payrolls figure was the catalyst for the US dollar weakness in August, a 4-5% negative move, and traders will be watching this one very closely again for signs of how the US economy has fared over the past month. Forecasts anticipate the US jobs market will have added 164,000 jobs in August, an increase from 114,000 last month, which was below expectation. Employment data is particularly important to the Federal Reserve, as it is required by law to maintain low inflation and unemployment. USD
This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.
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