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Market Update

• Posted by currencies in Bank of England, Currency, Dollar, Economy, EUR, Fed, GBP, Inflation, Rate Cuts, Rate Hikes, Sterling, UK, Uncategorised
• August 21, 2023
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From Monday-Thursday Sterling actually performed pretty well on the week, with Pound to Euro rate reaching 1.1730 and the Pound to Dollar rate hitting 1.28. Unfortunately, on Friday morning, weak UK retail sales showed a fall of -1.2% which brought Sterling down slightly which also dampened forecasts slightly. The data showed that due to bad weather in July, less of us were out shopping, and if it weren’t for Amazon Prime’s event, the number could have come in even lower.

The most important event this week is the Jackson Hole symposium being held on August 25th, the reason why this is important is this is when global central banks get together to discuss current monetary policy and begin setting plans for the next year- as you are all aware this last year has been filled with interest rate hikes- and the next question on everyone’s minds is when are these rates eventually going to be cut? If there is any strategy shift from the Fed, then it is potentially discussed or announced at this event. My prediction is that Fed Chair Powell will announce progress on getting inflation down, but will not run any victory laps just yet and will probably speak to the fact that rates will have to remain high for a little while, but at the same time the Fed will be ready to raise again if required.

In the Eurozone- flash PMI’s will have the spotlight this week, forecasts are currently showing a deeper slump in manufacturing and potentially more weakness in the services sector in Europe- if we see data continue to worsen in Europe, it is very possible that the ECB will have to pause their rate hikes which I would suggest would weaken the Euro- especially against the Dollar. The UK also has it’s business surveys out on Wednesday, where we are expecting something slightly more positive, services should stay above 50 but manufacturing has clearly still taken a hit in the UK- this data would still support more rate hikes from the Bank of England, where more hikes are still forecasted into the end of 2023 before any meaningful pause.