The Pound Euro exchange rate struggled to make much of an impact this week. Sterling being undermined by UK credit rating concerns and the Euro being knocked by Ukraine concerns.
Pound recovery undermined by UK credit rating concerns
The Pound got off to a strong start this week, as Chancellor Kwasi Kwarteng announced a U-turn on his plans to cut the 45p tax rate for the UK’s highest earners.
While the reversal still left plenty of concerns over the parts of his mini-budget still remaining, Sterling rallied amid hopes the Chancellor may be open to rethink other parts of his fiscal plan.
After wavering amid confusion over when the UK government would publish its medium-term fiscal plans, the Pound came under renewed pressure in mid-week trade following Liz Truss’s speech at the Conservative party conference. GBP investors seemed unimpressed by her claim she will keep an ‘iron grip’ on the UK’s finances.
This gave way to additional pressure in the second half of the week amid warnings the UK’ credit rating could be downgraded after Fitch joined S&P in cutting its outlook for the UK’s credit rating from ‘stable’ to negative’.
Meanwhile, the euro was muted at the start of this week amid ongoing concerns that the war in Ukraine could escalate in the coming weeks.
EUR exchange rates quickly rebounded on the back of a stronger-than-expected Eurozone PPI print, before giving ground again on Wednesday amid a rebound in the US dollar.
While the single currency was able to strengthen against a weaker Pound it struggled to replicate this success against its other peers in the latter half of the week following some disappointing German data.
Robust UK jobs report to offer some support to Sterling?
Looking ahead, the highlight of next week’s data calendar is likely to be publication of the UK’s latest jobs report.
If unemployment remains at a near 50-year low and wage growth rises in August this could provide the Pound with a much-needed boost in the first half of the week.
The subsequent release of August’s GDP figures could also provide some support for Sterling if the UK economy managed to avoid a contraction.
However these releases could be overshadowed by domestic developments, particularly if events lead to even greater uncertainty over the future of Truss’s premiership.
Meanwhile, with only mid-tier Eurozone data on the docket for next week any movement in the Euro may be driven by Ukraine developments.
If the conflict looks likely to escalate the single currency could weaken.
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