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Sterling recovers despite further stimulus prospects

Mon 21 September 2020

The week ahead:

  • Euro zone service sector activity data (Wednesday, 9:00am)
  • UK public sector net borrowing data (Friday, 7:00am)
  • US durable goods orders data (Friday, 1:30pm)

Highlights from last week:

  • Bank of England remains on stimulus standby
  • US rates to stay on hold for at least three years
  • Euro zone inflation drags down the euro

The week ahead: Quiet week ahead for UK data

A light domestic calendar this week suggests sentiment towards sterling is likely to continue to be swayed by continued Brexit talk plus the domestic impact of the pandemic in the near term. The only domestic data worth noting will be the release of both service sector activity data (Wednesday, 9:30am) and government borrowing figures (Friday, 7:00am).

The euro zone also has a quiet week in store for domestic data with the announcement of service sector activity figures being the only meaningful release (Wednesday, 9:00am).

Highlights for the US dollar’s domestic calendar this week will include existing home sales data (Tuesday, 3:00pm), house price index figures (Wednesday, 2:00pm), new home sales data (Thursday, 3:00pm) and durable goods orders data (Friday, 1:30pm).

View UK, US and euro zone announcements with our economic calendar

Other key data releases:

Swedish Riksbank interest rate decision (Tuesday, 8:30am)

Bank of Thailand interest rate decision (Wednesday, 8:05am)

Bank of Japan policy meeting minutes (Thursday, 12:50am)

Swiss National Bank interest rate decision (Thursday, 8:30am)

Last week recap – Sterling rebounds despite cautious BoE

After suffering some heavy losses earlier in the month, the pound launched a recovery during the course of last week, shrugging off threats from the Bank of England (BoE) regarding its readiness to pump more stimulus in to the UK’s economy. Interest rates remained at 0.1% as expected, but with the ongoing threat of COVID-19 to the UK economy along with the possibility on a no-deal Brexit the BoE remains set to prop up the economy if needed.

The UK’s current rate of inflation dropped to a five-year low during the course of last month as a raft of factors drove prices lower. The Office for National Statistics revealed inflation stood at just 0.2% in August. Discounted restaurant prices through the government’s Eat Out to Help Out Scheme was one of the main contributing factors for the drop, as was the drop in VAT across the UK’s hospitality sector.

Elsewhere, Britain’s labour market took a turn for the worse during the three months to July. The rate of unemployment across the UK spiked to its highest point in two years as companies remove staff from their payrolls in readiness for the end of the government’s furlough scheme. The rate of unemployment now stands at 4.1%.

US dollar retreats as Fed vows to continue support

Comments from the US Federal Reserve during its latest policy meeting stifled the dollar’s performance last week, casting doubts as to when higher interest rates are likely to return.

Federal Reserve Chair Jerome Powell along with other colleagues pledged support for the US economy for as long as it takes for businesses and households to recover from the pandemic. Officials also confirmed interest rates will likely remain close to 0% for at least three years. The central bank’s forecasts for economic growth were slightly better than originally thought with a contraction of 3.5% expected this year, better than the 6.5% contraction predicted in June.

Last week’s other economic figures confirmed US consumers reined in their spending during August as households aim to defend against unemployment and economic downturn. Retail sales across the US dipped by 0.1% last month, falling short of a 0.5% rise expected from many analysts.

At midday on Friday, a telephone conversion of £20,000 into US dollars via our Currency Service would have purchased US$25,742.

Euro backtracks as euro zone inflation stagnates

The euro struggled to pare weekly losses against the pound last week after the euro zone's rate of consumer inflation fell by 0.4% in the month of August and -0.2% year-on-year. The main factor behind the drop was a 7.8% yearly fall in energy prices across the 19 member states using the common currency. This means the European Central Bank’s task of bringing inflation closer to its target of 2% whilst trying to stimulate growth gets tougher.

At midday on Friday, a telephone conversion of £20,000 into euros via our Currency Service would have purchased €21,740.

Canadian dollar gives back recent gains to sterling

A tepid rise in Canadian consumer costs during August saw the Canadian dollar fail to extend upon recent gains versus the pound last week. Inflation edged slightly higher to just 0.1% on a yearly basis in August, stoking fears the Bank of Canada’s current stimulus measures will remain in place for longer before inflation returns to its 2% target.

At midday on Friday, a telephone conversion of £20,000 into Canadian dollars via our Currency Service would have purchased CAD$33,890.

Australian dollar suffers as RBA pledges to support economy

The Australian dollar struggled to make headway against the pound last week after minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting confirmed it will continue to maintain its current measures in supporting the country’s economy and will do so for as long as it takes. The central bank left its current interest rates at 0.25% during its meeting earlier this month but the latest comments stoked speculation a further cut in rates could be announced in next month’s meeting.

At midday on Friday, a telephone conversion of £20,000 into Australian dollars via our Currency Service would have purchased AUD$35,212.

Important information – our Currency Service is changing

In October we’re launching a new and improved service in partnership with Currencies Direct, a leading foreign exchange provider. Our existing service will operate as normal until then and we’ll be in touch soon with more information on transitioning to the new service. If you have any questions on this please contact us on 0117 311 3257 (Mon-Fri 8am-5pm).

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