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UK: Weekly FX Market Update 30 August

CalendarAugust 30, 2022


  • Weak PMI data for the UK showed an economy under pressure

  • The FT reported that probable new PM Liz Truss was considering triggering Article 16 within days of taking the reins

  • The Energy Price Cap was increased by 80% as expected

  • GBP/EUR and GBP/USD both closed below 1.1800.

The future continues to look bleak, with the forward-looking PMI data indicating a struggling UK economy. The cost of living crisis was further fuelled by an increase in the energy price cap starting on October 1st, by almost 80%, increasing the typical annual household bill beyond £3,500. With the cap expected to rise again in January 2023, the pressure on inflation is unlikely to be eased any time soon.

In what could also be another hit to the UK economy, one week before the expected confirmation of Liz Truss as PM, the Financial Times reported that she is considering triggering Article 16 and engaging in a feud with the EU. While this is being discussed in the news media and isn’t necessarily fact, could it be that Truss’ team is floating the idea to gauge public reaction before deciding whether or not to act?

This week starts with a UK bank holiday and with little meaningful data from this side of the pond. As a result, the market may likely continue to trade based on the implications in the message delivered by Federal Reserve Chair Powell at Jackson Hole last week.


Key points from Fed Chair Powell’s Jackson Hole speech:

  • History cautions against ‘prematurely’ loosening policy

  • It’s likely that a restrictive policy may be required for some time

  • The size of the September rate hike hinges on the ‘totality’ of data received

Despite some weak US datapoints, including Services PMI, the dollar remained supported last week. The market had been expecting a hawkish tone on US interest rates from Powell, and he delivered a strong message not only in the short term, but also trampling over the idea that the Fed would likely cut rates in 2023 as inflation declined. This encouraged USD buyers, pushing GBP/USD and EUR/USD below 1.1800 and parity respectively.

In what is a quiet week data-wise, Friday will provide us with the all-important Non-Farm Payrolls number for the US.


  • German IFO business sentiment surprised to the topside

  • EUR/USD traded back below parity again last week

  • Another quiet August holiday week beckons for Eurozone data

Events are conspiring against the euro.

The market, and the EU, are very concerned about the gas supplies from Russia being turned off on August 31st and not being turned back again, as expected, on September 2nd. In addition, there are worries about a nuclear disaster occurring in Zaphrizhzhya, Ukraine. 

The market is taking notice of hawkish comments from the ECB Board members, including Schnabel, discussing the failure of the inflation outlook to improve since July’s rate hike. In a period of little data, will the gas crisis or the rationale for future ECB rate hikes drive the direction of the euro?


  • The Chinese authorities announced a trillion Yuan support package in response to their weak economic situation

  • The PBOC cut the 5-year mortgage rates to 4.3% from 4.45%, in an effort to help the market

  • Following these stimulus measures, the commodity currencies were the big winners

Key events for the week

Tue Aug 30

09:00 EUR German Preliminary CPI

15:00 USD Consumer Confidence

16:00 USD FOMC Williams Speaks

Fri Sep 2

13:30 USD Non-Farm Payrolls/Unemployment Rate/Average Hourly Earnings


Trevor Charsley

Trevor Charsley

Senior Market Strategist

Trevor has over 25 years' trading and sales experience. He produces regular market and technical analysis as well as help with the structure and management of FX hedging policies. Trevor is often listed among the top "currency forecaster on Bloomberg".