Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
After a bruising few days, the pound is on track for its worst week in over a year. Sterling has lost around 1.7% against the US dollar so far this week, dropping by 2.2 cents since Monday to roughly $1.314 this morning. This positions the pound for its largest weekly loss since July 2023 – falling further could bring us back to February 2023.
The currency has weakened as global investors flee to safe-haven assets, and economists expect faster UK interest rate cuts than previously anticipated. As reported yesterday, the pound hit a three-week low against the dollar on Thursday after the Bank of England governor indicated to The Guardian that the BoE could adopt a more aggressive stance on cutting rates if inflation pressures continue to diminish.
That put significant pressure on the pound.
Before Bailey’s remarks, traders had anticipated a more cautious approach from the BoE compared to its US and eurozone counterparts. However, RBC Capital Markets now forecasts that the Bank could cut rates by a quarter-point at its next five meetings, reducing rates from 5% today to 3.75% by next May. Meanwhile, money markets suggest a more modest easing, with rates potentially falling to 4% by next May.
Additionally, a surge into the US dollar, which is currently trading near a six-week high against a basket of currencies, is further impacting the pound. Investors are seeking the safety of the dollar amidst rising tensions in the Middle East, where Iran has launched a missile attack at Israel, and Israeli forces have targeted parts of Beirut.
Hubert de Barochez, a senior markets economist at Capital Economics, warns that the pound may face further decline, stating: "The British pound fell sharply on Thursday, and we suspect that it will weaken more over the next year or so given our dovish view of Bank of England policy, the currency’s still-high valuation, and stretched speculative positioning."
Also coming up today:
We’ll hear from Huw Pill, one of the more hawkish policymakers at the Bank of England, this morning. Investors are also bracing for the latest US jobs report, expected to reveal around 140,000 new jobs created in America last month, slightly below August’s figures.
In the UK, the government has pledged nearly £22 billion to fund carbon capture and storage projects to meet climate targets. The chancellor, prime minister, and energy secretary Ed Miliband will announce the details during a visit to the Liverpool region, declaring a "new era" for clean energy jobs. This plan, led by Rachel Reeves, sets the stage for a multibillion-pound increase in public-sector investment at the upcoming budget.
The agenda:
- 8.30 am BST: Eurozone construction PMI for September.
- 8.55 am BST: Bank of England’s chief economist Huw Pill to speak at the ICAEW conference.
- 9 am BST: UK new car registrations for September.
- 9 am BST: UN food price index for September.
- 9.30 am BST: UK construction PMI for September.
- 1.30 pm BST: US non-farm payroll report for September.
