· GBP: Risk appetite still driving the pound
· EUR: Germany cannot rely on Russian gas
· USD: Dollar at new 20-year high
The pound made new lows versus the dollar and the euro yesterday before a minor recovery late in the afternoon, due to a rebound in equity markets.
UK manufacturing PMIs in August came in better than expected at 47.3, however the data showed that the sector contracted for the first time since May 2020. Supply chain disruptions and shortages of raw materials and workers all contributed to the decline in the sector.
The new PM will be announced next week. Markets will be keen to hear what fiscal policies either Truss or Sunak will put in place, and if whether such changes can alter the course of the UK’s trajectory into a recession.
Before then today’s US jobs data will have an influence on sterling markets, and a better than expected set of data will only add to US interest rate hike expectations – this will therefore cause equities to fall, taking GBP lower with it.
German manufacturing PMIs contracted for the second consecutive month, and fell more than expected causing the euro to weaken yesterday – the data overshadowed the fact that the EU unemployment rate fell to an all time low of 6.6%.
Even with news that the Nord Stream 1 pipeline is expected to reopen on Saturday following three days of maintenance, Germany sounded a warning that it cannot rely on gas supplies from Russia over winter, also contributing to euro weakness. Further maintenance on the pipeline is expected in October.
Better than expected manufacturing data from S&P and ISM drove the dollar index close to 110 yesterday (a new 20-year high), before easing off late in the day following a rise in equity markets. Fed member Bostic also echoed recent Fed speak that the Bank is not done in it’s battle with inflation.
All eyes are on August’s nonfarm payroll print at 1:30pm, expected to be lower than the July print. Markets are currently pricing in a 90% chance of a 0.75% rate hike this month, and an overshoot of the job data will only add to these bets, causing the dollar to gain further, and equities to drop.
Equals. Morning Report- 2nd September 2022
Today’s Interbank Rates at 10:01 am against sterling movement.
GBP>EUR – 1.1581
GBP>USD – 1.1555
EUR>USD – 0.9979
GBP>CAD – 1.5182
GBP>AUD – 1.6978
GBP>SEK – 12.450
GBP>AED – 4.2443
GBP>HKD – 9.0710
GBP>ZAR – 20.013
GBP>CHF – 1.1324
· 12:30 USD Nonfarm Payrolls(Aug)
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