Forex Market Update: Rollercoaster Journey For Sterling

 

Currency Index give their monthly update on the forex market.

Over the last month, the pound has been on a bit of a rollercoaster journey, seeing us challenge a 7-month low two weeks ago against the Euro and the US Dollar, but ending last week with pressure on a 19-month high against the Euro.

 

 

This is perhaps a surprising turn of events for Sterling when reading recent press coverage of a tough winter ahead for consumers and businesses given a surge in gas prices over recent weeks and fiscal tightening from the government on universal credits and a pending rise in National insurance next April.

Further pressures have been announced to UK electricity supplies prompting fears of winter blackouts after a recent fire at a connector station in Kent last week, which has caused a dramatic reduction in the amount of energy that can be imported via the undersea cable running from Britain to France – electricity reserves currently sit at their lowest level in six years. Rising inflation and supply chain issues, particularly for food, add to the dreary outlook which adds further ‘fuel to the fire’ for the Pound’s outlook suggesting Sterling sellers may want to view the current trading levels as a good opportunity to cover their FX requirements.

Brexit pressures continue to mount for both the UK and EU ahead of a speech on Tuesday by David Frost (UK Brexit minister) in Portugal, which many predict will criticise the EU’s policy over the Northern Ireland protocol, and the EU’s attempt to pacify tensions by scrapping its recent UK sausage ban as nowhere near enough. Frost is expected to request ‘significant change’ to the negotiated Brexit deal with a real focus on the scope of the European Court of Justice over breaches of the protocol which has been the subject of a recent Twitter spat between Frost and Ireland’s minister Simon Coveney.

The EU have gone as far as to suggest that the UK government are showing a distinct lack of motivation to progress in UK/EU relations and many now fear a series of snap tariffs to be imposed on UK exports such as Scottish Whisky to begin next year if discussions continue to show a lack of progress on the matter.

The US Dollar has been the strongest of the major currencies for much of the Summer, but weakness over the last week has had an impact on exchange rates as the Euro and the Pound jostled for the top spot amongst the three major currencies.

A shock to US employment figures on Friday afternoon from the non-farms payrolls (the number of new jobs created outside of the agriculture industry) posted a disappointing 194,000 against expectations of 500,000, showing that the US recovery from Covid is far from steady, with the labour market suffering from a shortage of employees and further outbreaks of Covid. Another notch in the barometer of global uncertainty which seems to have been prevalent over recent weeks.“