Pound (GBP) Extends Sell-Off amid UK Economic Fears
The Pound (GBP) slipped to fresh multi-year lows yesterday as the UK’s economic outlook continued to deteriorate. Economists warn that inflation could exceed 20% next year, even as the country enters a long recession.
Meanwhile, the cost of government borrowing has surged amid higher interest rates and expectations of a new public spending package. Whoever wins the Tory leadership election faces significant economic challenges on multiple fronts.
Aside from the final manufacturing PMI, UK data is thin on the ground today. With the UK’s situation unlikely to improve any time soon, Sterling’s downfall could continue.
Euro (EUR) Firms as CPI Overshoots Expectations
The Euro (EUR) surged yesterday after Eurozone inflation exceeded forecasts, fuelling expectations of a 75-bp rate rise at the European Central Bank’s (ECB) meeting next week.
Hawkish comments from ECB policymaker Joachim Nagel also boosted rate rise bets. Nagel said the ECB must ‘act decisively’ and deliver ‘a strong rate hike in September’.
Turning to today, the Eurozone’s latest unemployment rate could see the single currency climb even higher. Economists expect unemployment to have held at a record low in July, suggesting ongoing strength in the labour market.
US Dollar (USD) Limited as Employment Growth Slows
The US Dollar (USD) initially strengthened yesterday as a downbeat market mood saw traders flock to the safe-haven currency.
However, the ‘Greenback’ relinquished some gains in the afternoon. The latest employment change figures from ADP showed a notable slowdown from June through to August, indicating a weakening American labour market.
Looking ahead, the US ISM manufacturing is set to slip today, which could put some pressure on the US Dollar. However, a risk-off mood and rate rise bets may underpin the ‘Greenback’, potentially preventing any notable losses.
Canadian Dollar (CAD) Slips as Oil Prices Fall
The commodity-tied Canadian Dollar (CAD) was subdued yesterday, softening against its stronger peers, as crude prices continued their recent decline.
An expected slowdown in Canada’s manufacturing PMI today could weigh on the ‘Loonie’. Meanwhile, movements in the oil market will likely also affect CAD exchange rates.
Australian Dollar (AUD) Rebounds despite Poor Data
The Australian Dollar (AUD) initially fell in overnight trade amid disappointing manufacturing data from Australia and China. However, AUD managed to rebound without a clear catalyst for the movement.
New Zealand Dollar (NZD) Trades in Tandem with AUD
Likewise, the New Zealand Dollar (NZD) dipped and then recovered overnight, trading true to its strong positive correlation with the ‘Aussie’ Dollar.