We jump into another volatile week with the Federal Reserve interest rate decision out on Wednesday afternoon, followed by the Bank of England on Thursday.
USD
Last week US Core CPI jumped from the expected 0.3% to 0.6%, signalling that the FED still has some way to go to tame inflation. A 0.75% or 1% interest rate rise is now in play, and we expect the Dollar to strengthen. However, this could be the last consecutive hike as they wait for the full effects to take hold, which may give EURO and GBP a chance to claw back some value.
GBP
Sterling had a poor week, falling 3.5% against the Dollar to levels not seen in over three decades. Retail sales also fell well short of expectations last week, showing a decline of 1.6% in August vs the expected 0.5% decline, adding to GBP’d decline. The Bank of England will make its move on Thursday but is expected to increase rates by 0.5%, which is unlikely to move the needle. However, on Friday, new Chancellor Kwarteng, will release his mini-budget, which he said will focus “entirely on growth” and may have a more significant impact on Sterling.
EUR
The Euro is back below parity with the Dollar again, and despite a bumper interest rate hike from the ECB, it looks set to struggle. The ECB will likewise increase the rate by another 0.75% next month but is it too much, too late? Monetary policy can only do so much, and in the case of Europe, its glaring problems won’t be solved with a rate hike. With CPI rising to 9.1%, no immediate end in sight for the Ukraine war, or hope that Russia will turn the gas supply back on, it looks like Europe is headed into a cold winter with fuel rationing on the cards.
The Week Ahead
Tue Sep 20
EUR Current Account
Wed Sep 21
USD Fed Interest Rate
Thu Sep 22
GBP BoE Interest Rate Decision
Fri Sep 23
GBP Chancellor Kwarteng announces mini-budget