Sterling under pressure this morning
US equity markets retraced a good portion of Friday’s slide yesterday, helped by a more conciliatory tone from Donald Trump towards China. The dollar has also rebounded from its (modest) fall at the end of last week, trading at around $1.1560 versus the euro this morning. Sterling is under pressure following the release of softer than expected UK labour market data a short while ago. The pound has fallen below the $1.33 level against the dollar, trading back at around last week’s lows of $1.3260, and has weakened to about £0.8720 against the euro (from yesterday’s best levels of circa £0.8665). The focus today will be on Fed Chair Powell’s speech to the National Association of Business Economists, where he will talk on the outlook for the US economy and monetary policy ahead of the central bank’s next meeting in a fortnight’s time.
The US bond market was closed yesterday for Columbus Day, although not the US equity market. In Europe, German and UK bond yields nudged lower on the day and have dipped further this morning amid the weaker than forecast UK economic data and a soft opening for European equity markets. The latter are off around 0.9%, having gained about 0.7% yesterday. The main US indices rebounded by 1.2% to 2.2% yesterday, led by the Nasdaq (which also led Friday’s slide), but are set to open lower later today according to the futures market.
The unemployment rate in the UK nudged up to 4.8% in June-August according to this morning’s release, its highest level in about four years. Most notably though, the annual rate of growth in average weekly earnings in the private sector – which the Bank of England (BoE) is monitoring very closely – decelerated to 4.4% from 4.9% over the same period, the slowest pace of growth recorded since late 2021. The BoE expects earnings growth to slow to under 4% by the end of this year – today’s data suggest its forecast is on track – which it expects in turn to contribute to a deceleration in services inflation from its still elevated rate of around 5%. The market has brought forward the expected timing of the next 25bps cut in interest rates following this latest data, albeit it is still not seen until March next year.
It is very quiet in terms of economic data for the rest of the day, with the ZEW investor sentiment index in Germany/Euro area and the small business optimism index in the US the only releases scheduled. As mentioned, Fed Chair Powell speaks later today, while a number of other central bank members are due on the wires too, including BoE Governor Andrew Bailey.