UK: Weekly FX Market Update 5 September

GBP

• New UK Prime Minister announced on Monday September 5th

• The PM faces inflation already at 10% and rising fast

• Energy poverty a real prospect for UK population - is a winter of discontent looming?

• Could Article 16 be triggered by September 15th?

• GBP/USD has fallen 15% so far this year

Former Deputy Governor of the Bank of England Charlie Bean recently said that investors are starting to see UK assets as riskier because of the probable new Prime Minister, Liz Truss’s policies. In his opinion, this would be because the UK would run a ‘large sustained deficit in the medium term.’ This week has also seen the FTSE fall and UK gilts sold as well.

The week ahead includes Parliamentary Monetary Policy Report Hearings and an interest rate decision from the ECB.

If the ECB hikes rates by 0.75%, could this push GBP/EUR lower? Last week the currency pair fell by 1.5% in anticipation of this week’s decision.

EUR

• Europe is taking emergency measures to move its gas supplies away from Russia.

• Inflation has hit an all-time high, since the Euro was introduced, of 9.8%. (Eurostat data)

• Bloomberg analysis give a 70% probability that the ECB will raise interest rates by 0.75% on Thursday September 8th.

At the time of writing, Gazprom has just announced that the Nord Stream pipeline is to remain shut after a technical issue. Unless it is re-opened this increases the chances of an EU recession and could encourage euro selling. Russian government official Novak said that when the EU’s oil embargo starts in December, any country that supports the embargo will not be supplied with oil and oil products.

While the US is energy efficient, and its central bank is hiking rates aggressively, could EUR/USD continue to decline and settle below parity?

USD

• US Labor Day holiday Monday Sep 5th

• Last week’s employment data showed a US economy that is still going strong, with 315k jobs added to the economy in August.

• The US$ Index hit the highest level since 2002 last week.

Fed Chair Powell speaks on Thursday. Could he continue in the same hawkish manner as his Jackson Hole speech and drive further USD strength?

GBP/USD dropped in to the 1.15’s last week, could Powell’s speech be enough for it to test the next technical level of 1.1411 - the Covid low?

RoW

• USD/JPY traded at 140.00 last week, trading at levels not seen since 1998.

• The Reserve Bank of Australia is expected to raise interest rates by 0.5% this Tuesday, hiking interest rates to 2.35%.

• China has locked down its mega city Chengdu, which has a population of 21 million.

Key events for the week

Mon Sep 5

US Bank Holiday

CAD Bank Holiday

16:30 GBP MPC Mann Speaks

Tue Sep 6

05:30 AUD RBA Interest Rate Decision

Wed Sep 7

00:00 CNY Trade Balance

02:30 AUD GDP

10:00 EUR Revised GDP

11:00 GBP Monetary Policy Report Hearings

15:00 CAD BoC Interest Rate Decision

Thu Sep 8

13:15 EUR ECB Interest Rate Decision

13:45 EUR ECB President Lagarde Speaks

14:10 USD Fed Chair Powell Speaks