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Currency Market Update - 14th September 2023

Currency Market Update Pound Sterling continued it’s downward trend against The USD, struggling to get back to the 1.25 levels, after poorer than expected economic growth figures in The UK.

The economy contracted by 0.5% in July, more than the anticipated 0.2% growth. The main contributors seem to be the strike action taken up by healthcare workers and teachers weighing down on those sectors in particular. July was also a weaker month for the construction and retail sectors due to the poor weather suffered in July. Even after Bank of England Governor Andrew Bailey stated we are closer to the peak of interest rates, financial markets are still tipping the central bank to hike once more next week with another 25 basis points.

Next Wednesday see’s the release of the UK’s latest inflation data, although it may be too close to the Bank of England’s rate decision it is suggested there could be a slight rise in the figures released. Most notably because of the rising Oil prices last month. It is noted however, that unless there is further domestic and global shocks, that The UK should avoid a recession.

Inflation for The U.S last month climbed ever so slightly from 3.2% to 3.7% with the main drive in inflation coming from higher costs in housing rent and fuel. Yesterdays report showed fuel prices was the main driver with fuel inflation coming in at 0.6%, which is the highest monthly figure since June 2022. Even taking out fuel and rent costs, consumer prices still rose by 0.3%, however analysts believe The Federal Reserve is still unlikely to raise interest rates later this month, mainly because interest rate rises have little influence over fuel prices.

Later this afternoon, the focus switches to The European Central Bank and their Interest Rate decision due out at 1:15pm. Their base rate is currently at 4.25% and it’s widely expected that The Central Bank will leave their rates unchanged for the first time since early 2022. Annual inflation in Europe is currently at 5.3%, considerably lower than the 10.6% recorded in October 2022, however Core Inflation which excludes volatile food and fuel costs, is still above 5%. More than double the 2% target.



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