GBP
Sterling lost ground for a second straight week last week, with the UK economic outlook continuing to sour, amid a further planned surge in energy prices, piling additional pressure on disposable incomes as the cost of living crunch worsens.
This took the quid to its lowest levels against the dollar since March 2020, including a brief dip below the 1.17 handle, with further losses now looking likely, as pessimism continues to mount.
Looking ahead, this week’s economic docket is rather quiet, though that is unlikely to provide much relief to the pound, which looks to have significant further downside in store.
EUR
The common currency is faring almost as poorly as the pound, having now decisively broken below parity, as the prospect of energy rationing on the continent this winter becomes increasingly realistic.
This comes despite the ECB becoming more and more hawkish, with some Governing Council members openly touting the possibility of a 75bps hike next week, amid the rapidly closing window to tighten policy before recession arrives in Q4.
Looking ahead, this week is relatively quiet data-wise, as attention begins to shift to the next ECB decision.
USD
The greenback remains the ‘pick of the bunch’ in G10 FX, especially after Fed Chair Powell’s hawkish speech at Jackson Hole on Friday spurred the market to almost fully price in a 3rd straight 75bps hike at the next Fed meeting in mid-September, taking the DXY to new 2-decade highs.
Slowing global economic growth, desired by central bankers to destroy demand in order to tame inflation, is also continuing to work in the USD’s favour, with most other G10 currencies remaining rather unattractive.
This week, the main event comes on Friday, in the form of the latest slate of labour market figures, set to show the employment situation continuing to overheat, raising the chances of more aggressive Fed policy action.
World News
The UK is expecting to head into a recession later this year, with the risk of a deep contraction due to soaring energy costs according to Goldman Sachs. The Investment bank see UK GDP falling by 1% through mid-2023, as data last week showed weakened economic activity. With the Bank of England already raising interest rates by its biggest margin in 27 years, the warning comes as the UK heads towards more than a year-long recession.
Belgium’s Energy Minister, Tinne Van der Straeten has warned that EU countries could face five to ten terrible winters if nothing is done to reduce natural gas prices. Calls are increasing for the EU to introduce a cap on the price of gas and its decoupling from the price of electricity. EU States have been struggling with huge energy bills since Russia invaded Ukraine, a key gas supplier to the EU. Russia, which supplied the EU with 40% of its gas last year, as also restricted supplies as EU countries also try and cut imports coming directly from Russia.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Tuesday 30th August | EU | German Prelim CPI m/m | 0.90% | 0.30% |
| Tuesday 30th August | US | JOLTS Job Openings | 10.70m | 10.37m |
| Thursday 1st September | US | ISM Manufacturing PMI | 52.8 | 52.1 |
| Friday 2nd September | US | Average Hourly Earnings m/m | 0.50% | 0.40% |
| Friday 2nd September | US | Non-Farm Employment Change | 528k | 295k |
Indices
| Share Index | Prev. Close | Open |
| FTSE100 | 7427.31 | 7427.31 |
| DAX | 12892.99 | 12919.43 |
| CAC40 | 6222.28 | 6242.28 |