Sterling starts the week following gains against both the Euro and Dollar, with GBP/EUR trading around 1.1850 and GBP/USD close to 1.33. However, the Euro has weakened this morning following unrest in France over the weekend. Political uncertainty and concerns about French government finances continue to affect confidence in the currency.
The Dollar has steadied after last week’s losses. US consumer inflation rose to 3.7%, while producer prices increased sharply, showing that inflation remains a concern. Despite this, markets are pricing in an 87% chance that the Federal Reserve will keep interest rates unchanged at its October meeting. Recent comments from Fed officials suggested there was time to assess the economy before deciding whether another increase was needed.
Today is relatively quiet for major UK and US releases, although Canadian inflation is due at 1.30pm UK time. A higher than expected reading could reduce expectations of lower Canadian interest rates and support the Canadian Dollar. The Bank of Canada’s business and consumer surveys follow at 3.30pm, providing further information on spending, hiring and inflation expectations.
For Sterling, attention turns to tomorrow’s UK employment figures. Unemployment is expected to rise slightly from 4.9% to 5%, while annual wage growth including bonuses is forecast to ease from 3.9% to 3.8%. Weaker employment and slower pay growth could reduce expectations of a Bank of England rate rise and put pressure on the Pound.
Wednesday then brings UK inflation, with the annual rate expected to increase from 3.1% to 3.4%. Core inflation, which excludes food and energy, is forecast to rise from 2.6% to 2.7%. Higher than expected figures could support Sterling, although rising prices alongside a weaker jobs market would make the Bank’s decision more difficult.
Later in the week, Friday’s UK retail sales and business activity surveys from the UK, Eurozone and US will help show how spending and business conditions are holding up. With the UK Budget approaching on 28 October, these releases could cause further movement in exchange rates and affect the cost of overseas payments.