Further US Dollar strength continued throughout Tuesday and overnight, mainly supported by its safe-haven status with Oil prices climbing higher, as well as a sell-off in the bond markets.
The safe-haven status came after The U.S launched strikes against IRGC targets in Iran. As recent as the weekend, the US and Iran were deadlocked in negotiations over the control of the Strait of Hormuz but strikes resumed on Sunday for the first time since July. Oil prices had gained on Monday and continued the gains into Tuesday after these fresh rounds of strikes. The bond sell-off which has been driven mainly by rising inflation concerns and fiscal debt saw U.S 10-year yields reach its highest levels since November 2023, whilst 2-year yields also hit their highest levels since July 2024.
Yesterday afternoon, the latest Job Openings showed U.S job openings for July were lower than anticipated, coming in at 7.27 million but with June’s figures remaining near the two-year high of 8.585 million recorded in April, it seems the US employment picture is showing some resilience. This will move us nicely onto ADP Employment Change this afternoon, ahead of Friday’s crucial Non-Farm Payroll release. After yesterday’s release, markets had the probability of a September rate hike at 68%.
Sticking with the theme of Bond Yields, The UK 10-year gilts climbed to 5.22% on Friday, while the 30-year gilt hit 5.85%. Crucially, both gilts rose further yesterday, hitting 18- and 30-year highs respectively. The reason this is crucial, when gilts rise, government debt also rises and generally this gap is paid by the public purse. With Andy Burnham facing his first set of PMQ’s this afternoon, he will no doubt be quizzed on how his government plan to service this debt, and where it is coming from. We therefore could potentially see some volatility surrounding The Pound as we enter the afternoon.
Turning our attention to this afternoon, we have an interest rate decision from the Bank of Canada. The expectation is that interest rates will be kept on hold at 2.25% which would mark a seventh consecutive hold as new U.S tariffs potentially weigh heavy on the Canadian economy. Recent trade talks between Canada & The US broke down, with the outcome being a 50% duty on roughly 5% of Canada’s exports.
GBP/EUR 1.1653 GBP/USD 1.3499 GBP/AED 4.9611
GBP/AUD 1.8925 GBP/CHF 1.0991 GBP/CAD 1.8815
GBP/NZD 2.3191 EUR/USD 1.1569 GBP/ZAR 21.8054