Pound Slumps against Euro and US Dollar as UK Reveals Rise in National Insurance Contributions

Pound (GBP) Dented by National Insurance Rise 

The Pound (GBP) slipped to a six-week low against the Euro (EUR) amid new plans to raise national insurance contributions by 1.25% – a move that business groups worry will dent the economy and lead to job losses. 

However, the downside was limited somewhat by the Bank of England’s (BoE) Michael Saunders who suggested that interest rates could rise next year. Sterling was able to post modest gains against some of its weaker rivals. 

In the absence of UK data today, the Pound could find itself under sustained selling pressure as markets digest the news of a national insurance hike

Euro (EUR) Makes Gains on Mixed Data 

The Euro (EUR) had mixed success in yesterday’s session, slipping against the US Dollar (USD) but rising against many of its other rivals. 

The upside came as German industrial production printed above expectations, as did employment and GDP growth in the Eurozone. 

However, the gains were capped after Germany’s ZEW economic sentiment index printed below forecasts to hit its worst level since March 2020. 

With no notable Eurozone data due out today, the single currency could be vulnerable to losses – particularly if the USD recovery continues. 

US Dollar (USD) Rebounds on US Treasury Yields 

The US Dollar continued its comeback yesterday, as the US ten-year Treasury note rose to 1.375%. 

This helped the ‘Greenback’ in its recovery as markets move on from last week’s dismal non-farm payrolls figure, while a slight souring of risk sentiment also lifted demand for the safe-haven USD. 

Looking ahead, US economic optimism is forecast to drop to a new seven-month low and the JOLTs job openings figure for July is also expected to ease. However, if these reports add to the shifting market mood they could end up supporting USD. 

Canadian Dollar (CAD) Pressured by USD Strength 

The commodity-linked Canadian Dollar (CAD) fell sharply yesterday, dented by both a drop in oil prices and its negative correlation to a rebounding US Dollar. 

CAD could face further headwinds later today as the Ivey PMI is expected to drop again from 56.4 to 56. While this is only a marginal decrease, it would still represent a further fall from June’s score of 71.9 

Australian Dollar (AUD) Softens as Risk Appetite Fades 

The Australian Dollar (AUD) ticked lower overnight, as a souring market mood sapped demand for the riskier ‘Aussie’. 

New Zealand Dollar (NZD) Dips amid Souring Market Sentiment 

The New Zealand Dollar (NZD) also trended lower in overnight trade, dented by the bearish shift among investors.