Currency Market Update - September 8th 2021

CURRENCY MARKET UPDATEThe Pound rose sharply against the US Dollar on the close of last week, Friday, due to a massively underperforming non-farm payrolls report. The monthly jobs reports, released on the first Friday of every month, was expected to add 750k jobs however actually come in at a shocking 235k. On a more positive note, average hourly earnings for the US rose along with unemployment falling.

The Federal reserve are closely watching employment figures in the US as the impact of the pandemic on companies and those able to work continues to shake the markets. The markets are awaiting any indication from the Fed to begin tapering (reducing the amount of asset purchasing and bond buying) and to start raising interest rates. With non-farm payrolls being released incredibly weak; it wouldn’t be expected any announcements on tapering and raising rates at this Septembers meeting. Current market sentiments is for discussions to begin in Novembers meeting.

It is a fairly quiet week ahead in terms of data releases. The key release being The European Central Banks interest rate decision, which is to be released on Thursday 9th September. Interest rates for the Euro-Zone currently sit at 0.0% and there doesn’t seem to be any signs of this being adjusted in the short term. The ECB will hold a press conference shortly after the decision has been released, and the markets will be watching closely to gain any hints/indication as to when the EU will start looking at hiking rates.

The EU has recently announced changes to it’s inflation mandate in order to allow for more flexibility over monetary policy and discussions will continue surrounding its pandemic emergency purchase programme (PEPP) asset purchasing programme. The PEPP is due to run until march 2022, however many members of the EU are seeking to push this date further out. The recent rise of inflation to 3% will support the debate to extend this.

Friday, we have the German inflation rate year-on-year and month-on-month which are expected to rise by 0.1% and fall to 0% respectively. The year-on-year will be more closely looked at due to it’s higher importance. Shortly after, Gross Domestic Product (GDP) for the UK will be released and is the most important data drop for the UK this week. The 3-month average and year-on-year figure are both expected to fall. Should this date come out as expected; we may see the pound fall towards the end of the week. Any gains on GDP, could support the Pound.

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