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GBP
The Pound experienced extreme volatility on Friday after the release of Kwarteng’s ‘Mini-Budget’. The market reacted negatively to the Tax-Cuts, meant to incentivise growth in the UK. Unfortunately, the bad news doesn’t stop there, as Sterling hit an all-time low against the USD as trading began this morning dropping a total of 75 since the markets opened on Thursday. A similar trend can be seen with GBP/EUR, as the Pound continues to weaken against the Euro this morning. The reduced confidence in Sterling is backed by Kwarteng’s statement on Sunday informing the UK that he would be pursuing more Tax Cuts.

EUR
The Euro has fallen against the strength of the US Dollar Since trading began on Friday. The gain against Pound Sterling can be tied to investors pulling funds out of the UK and reinvesting them abroad. ECB President Lagarde is expected to speak for the next three days – along with other ECB members – bringing added volatility to the Euro. German retail sales are released on Friday morning, before Eurozone HICP (a measure of changes in the price of goods and services) in the afternoon, both of which could stimulate end-of-week volatility.

USD: The Dollar has seen a huge increase in strength against both GBP & EUR. As the US continues to increase Interest rates and tow the line between Recession & inflation, the dollar remains King. US Treasury Bonds have continued to soar with the prospect of additional interest rate hikes from the FED. The added confidence in the greenback has seen the Safe-haven currency climb to a new two-decade high against a basket of major currencies – and an all-time high vs GBP.

Markets started September on a strong note, with major global indices closing the first week in the green. An additional push in positive market sentiment has been the most recent development in Eastern Europe: in fact, this weekend served as a reminder of the ongoing and changing nature of the Russia-Ukraine war.

Nonetheless, whether the strong start to the month was just a market positioning adjustment or the sign of anything more sustained will be on watch this week, especially as a new set of inflation reports comes out. In fact, a bevvy of consumer price index (CPI) reports for August come out this week: Germany, Spain, and the U.S. all release on Tuesday, the U.K. releases its report on Wednesday, France releases its report on Thursday, and Italy and the Eurozone as a whole release theirs on Friday.

GBP
The Bank of England, whose meeting was due this week, postponed its interest rate decision last Friday in the wake of Queen Elizabeth II’s passing. It’s the first delay to a monetary policy meeting since the central bank became operationally independent 25 years ago. Moreover, the central bank faces a more fluctuating environment with new Prime Minister Liz Truss in charge and already having issued a major energy plan. Its effect on the market is among the things the BOE will have to weigh. Nonetheless, postponing their interest rate decision would allow policy setters to gather more economic data. In fact, having witnessed a contraction of 0.6% in economic activities during June 2022, market players will be interested in July’s monthly GDP figures to confirm the recently hawkish hopes from the Bank of England. Forecasts suggest that the UK GDP will reverse the previous drop with 0.5% MoM in July. Meanwhile, Manufacturing Production, which makes up around 80% of total industrial production, is expected to improve to 0.6% MoM in July.

EUR
European stock markets are expected to open with modest gains today, continuing the positive trend seen at the end of last week, helped by the substantial territorial gains made by Ukrainian troops over the weekend. Ukraine has retaken more than 3,000 sq. km this month, with most of this ground being taken thanks to a rapid weekend offensive that forced Russia to abandon its main logistics hub in the Kharkiv region. After months of stalemate, these swift manoeuvres will give the markets room to reconsider the range of outcomes. Prolonged attrition remains one option, but an earlier-than-expected end to the conflict has entered the equation. Ultimately, European markets closed last week with healthy gains as September started on a positive note, and this tone is expected to continue.

USD
The main point of focus this week is U.S. consumer price inflation data due on Tuesday, which is largely expected to dictate the path of the dollar in the near term. Markets are expecting inflation to retreat further from highs hit earlier this year, helped largely by easing fuel prices. Nonetheless, the reading is still expected to be well above the Federal Reserve’s annual target of 2%. Ultimately, this could give the Federal Reserve food for thought ahead of next week’s policy-setting meeting, with the U.S. central bank expected to deliver its third consecutive rate increase of 75 basis points in an attempt to curb this high inflation.

Queen Elizabeth II, the longest reigning monarch in British history who had recently celebrated her platinum Jubilee this year, marking 70 years on the throne, has peacefully died aged 96, Buckingham Palace announced on Thursday. Following her death, the Queen’s eldest son Charles, the former Prince of Wales, will become King in a formal ceremony in London and lead mourning services across the United Kingdom.

‘Her legacy will loom large in the pages of British history, and in the story of our world’ – Joe Biden

European and UK stock markets are expected to open sharply lower today, as investors fret over the economic risks facing the region, including geopolitical developments, further energy shortages, and slowing growth coupled with soaring inflation.

In fact, the escalating energy row between Moscow and the West is set to occupy investors’ attention in the week ahead after Moscow vowed to keep its main gas pipeline to Germany shut. Nonetheless, UK political development will most likely be under the spotlight in the first half of the week as Monday and Tuesday will see the announcement and appointment of the UK’s new prime minister. Additionally, the European Central Bank and Christine Lagarde are set to deliver a big rate hike on Thursday whereas Federal Reserve Chair Jerome Powell is due to make an appearance before the central bank goes into its blackout period before its next meeting at the end of the month.

GBP
The UK prepares for an important day today as the Conservative Party will unveil their new leader, with Liz Truss being the overwhelming favourite. Whereas tomorrow, Tuesday 6th September, the new PM will officially take office after being appointed by the Queen to succeed Boris Johnson. Their roadmap to the UK’s current economic headwinds will be key: extra support for businesses and households will be of utmost importance with Brexit issues also expected to return to the forefront if Truss wins. Nonetheless, Ahead of the Tory party’s leadership announcement, there will be some financial news releases. In fact, investors will be looking for more meat on the bone in terms of commentary on current trading and the outlook for the rest of 2022. UK services sector PMI data will be of interest, mid-morning, but may be drowned out by the headlines from Westminster.

EUR
The Euro seems set for a very volatile and turbulent week losing ground in early trading hours this morning. The standoff over Russian gas and oil exports escalated Friday after Moscow vowed to keep its main gas supply pipeline to Germany shuttered. The latest Nord Stream pipeline shutdown, which Russia says will last for as long as it takes to carry out repairs, added to fears of winter gas shortages that could pull major economies into recession and lead to energy rationing. The latest development has seen the euro fall below 99 cents to the dollar for the first time in over two decades. Europe has accused Russia of weaponizing energy supplies in what Moscow has called an “economic war”. Nonetheless, Moscow blames Western sanctions and technical issues for supply disruptions. Ultimately, the European Commission has warned that a full cut-off of Russian gas supplies to Europe, if combined with a cold winter, could reduce GDP across the European Union by as much as 1.5% if countries did not prepare in advance.

USD
Concluding last week’s stretch of US economic data was the release of the monthly employment report: Non-Farm Payrolls. Friday’s employment report for August was a mixed bag – while the economy added more jobs than expected, wage growth moderated and the unemployment rate ticked higher. In fact, non-farm payrolls rose by 315,000 through the middle of the month, a slowdown from July’s 526,000 but clearly ahead of consensus forecasts for a 300,000 gain. Wage growth also eased by more than expected, with average hourly earnings rising only 0.3% rather than the 0.4% expected. As such, the annual rate of earnings growth stayed at 5.2%, well below the current rate of inflation. Ultimately, the mixed reading keeps alive the ongoing debate over the size of the next Fed hike. Nonetheless, expectations for aggressive Fed action have solidified since the hawkish speech by Powell at the Fed’s Jackson Hole conference last month.

Last week Europe seems to have been at both the mercy and peril of the hot weather. With the UK producing a jump in retail sales in July, and the river Rhine proving to cause trade issues, leaving vessels in standstill traffic and some cases stranded due to the lack of rainfall. This week’s calendar will bring another tumultuous week of trading with Monday’s focus on the Bank of China’s interest rate decision, and then on Tuesday, eyes will be on Germany’s Composite and Manufacturing PMIs.

GBP
After the CPI figures for July surged to a 40-year high last week, GBP has opened weak against the dollar in particular, following the news from across the pond that a recession may be avoided in the states last week.

Meanwhile, a second day of strike action is underway at the UK’s busiest container port after workers walked out on Sunday in a pay dispute. The Union Unite said around 1,900 of its members were striking, expected to last eight days, at the Port of Felixstowe in Suffolk. If the strike continues as planned there is great concern about the impact of the strike on shipping companies and the delay in imports being received. With companies looking elsewhere within the UK to receive the shipments at alternative shipping ports.

Additionally in the UK, with Inflation set to hit 13% by the end of 2022, the conversation around the cost of living continues with under the ’30s facing a growing cost of renting crisis with statistics showing 4 in 10 of this age group are now spending more than 30% of their pay on rent. Making rental costs unaffordable and extremely concerning as a recession continues to loom. For the Economic calendar, attention is on the PMI data released this week for the UK, Europe and US.

EUR
EUR/USD today has fallen below parity as the market opens this morning, with the US dollar continuing to rally from the previous week’s hawkish Fed expectations. The euro continues to look vulnerable, hitting a 5-week dip with Russia announcing a three-day halt to the European gas suppliers via the Nord Stream 1 pipeline again at the end of August, deepening the EU energy crisis. As well as recession and inflation risks continuing to spiral as the Euro weakens further.

Eyes are on Germany’s composite and manufacturing PMI data released this week. Which could continue to weaken the Euro further if a negative outcome.

USD
After a strong week for USD, hitting a 5-week high, this week we could see the save haven currency strengthen even further after the Feds hawkish announcement of the states (somehow) avoiding the expected global recession. All eyes remain on the Fed policy makers speaking at Jackson Hole this week ( 25-27th Aug) with Fed speakers stressing the message that more rate hikes are coming given “The fight against inflation has not yet been won,” amid growing expectations for Fed Chair Jerome Powell to stress that tightening is “still a long way from the end,” Markets are predicted to remain strong amid Chinese stimulus bets and the European energy crisis.

GBP
The Bank of England has warned that inflation could hit 13% by the end of the year. In addition to the political vacuum and roaring energy prices, parts of the UK are now suffering drought-inducing heat waves. With UK Employment & Inflation numbers being released Tuesday & Wednesday, further harmful economic data could cause GBP to experience an increase in volatility mid-week. If the UK sees both unemployment & inflation numbers up, we will see a weakening of the GBP against the Dollar and Euro.

EUR
The Euro Zone is expected to release similar economic data on Wednesday increasing the chances of volatility across the market mid-week. Employment Change & Gross Domestic Product for Q2 will give us an insight into the European Union’s current economic state. The GDP figures set to be announced will impact the value of the Euro significantly, depending on the positive or negative nature of the data. The GDP is considered as a broad measure of Euro Zone economic activity, and a rising trend will have a positive effect on the currency.

USD
The Dollar is expected to see a slow start to the week, as it tries to increase in value after a poor performance last Wednesday through Friday. On Wednesday the US is expected to release its Retail Sales data for the month of July. Positive changes in US retail sales are seen as Bullish, & the preferred movement of the economy. In addition, the FED will be releasing its Open Market Committee minutes which will give market analysts a clear insight into the future US interest rate policy.

GBP
Last week saw the Bank of England spook the market slightly with aggressive downgrades on the economic outlook alongside an interest rate hike. They confirmed that rate hikes were likely to continue, but the UK is expected to enter a 5 quarter recession later this year with inflation peaking around 13%. Friday’s GDP report also indicated that the UK is already in a recession, however, a rebound is expected in Q3 hence the recession starting in Q4.

On slightly more positive news most economists seem to think that most of the bad news is priced in, with many feeling that the Bank of England is more realistic in its news than the Fed or the ECB. A quiet week data-wise ahead for the Pound, but nervousness still exists around imported inflation and rising energy prices.

EUR
As the Dollar weekend slightly towards the end of last week, the Euro seemed to be the main beneficiary. This, however, is expected to be short-lived. Russia’s continued threat hanging over gas prices is expected to weigh heavily on the single currency, with record electricity prices being faced across the Zone. Drought in Germany may lead to a decline in water levels on the Rhine. This is significant because around 30% of Germany’s natural gas, coal and iron ore are transported along this river and if levels fall too low this will affect the supply chain. The last time this happened was in 2018; it shaved 0.4-0.7% off GDP. Very little data for the Eurozone this week, with the currency expected to be driven by external trends.

USD
Stronger than expected payroll figures on Friday (more than double expectations) saw the Dollar not only strengthen but also increase the likelihood of further hikes in US interest rates in the coming months. This was coupled with the fact that unemployment fell to 3.5%, a near 50-year low, giving the Greenback a confidence boost. US treasury yields are up and there was a sell-off in short-dated bonds meaning the Dollar, while it is a touch weaker, continues to perform strongly relative to a week ago.

Aside from CPI numbers this Wednesday there is very little data coming out of the US. A potential issue to keep an eye on is a weakened outlook out of China, there have been reports of a surge in covid cases which could lead to further lockdowns which could affect the Dollar.

GBP
There was a fair amount of data on Friday for investors to digest. New orders increased slightly as did business optimism, however this was offset by other numbers missing the mark. Services-sector index fell to a 17-month low but did come in above market expectations and finally, UK PMI manufacturing numbers hit a 25-month low – in line with consensus forecasts. The Conservative leadership contest will be of interest this week as both contenders reveal more about their economic policy. With GBP looking particularly fragile to external forces, any unexpected announcements from either potential leader could see increased volatility.

EUR
Euro-Zone, German and French PMI manufacturing index numbers all showed contractions, with the Euro-Zone numbers hitting 25-month lows. Services-sector readings also missed their targets and again there were 15-month lows for the Euro-Zone as a whole. New orders declined which only added to Euro woes meaning the single currency ended the week pretty badly. There are increasing fears over the health of the Zone’s economy with particular concern over Germany. It makes up such a big part of the region and is very heavily reliant on Russian gas, with the German Bundesbank stating that the economy will remain weak, the outlook for energy markets is bleak and inflation is likely to spike. Geopolitical issues continue to weigh heavily on the single currency with volatility expected to continue going into this week.

USD
The Dollar had a reasonably difficult end to the week with the news that the Fed are unlikely to raise rates on Wednesday by the previously rumoured 100 basis points but “only” by 75 basis points. Despite this being a significant raise, the market saw it as a fall in one measure of long-term inflation. All eyes will now be focused on the rhetoric around the decision and any hints as to what the Fed may do at the next meeting on 21st September. Thursday sees US GDP data and Friday sees Core CPE Price Index readings, however, unless there are significant movements above or below expectations Wednesday’s Fed meeting will steal the headlines. One thing of note is that if Thursday’s GDP data sees a contraction, it would mean that the US meets the conventional definition of a recession (the US uses a different definition). This could see the Dollar fall, however, if the global outlook remains poor and this is seen as a prelude to recessions elsewhere, USD could be a safe haven.

A positive start to the new week for global markets has benefited the British Pound but put the Dollar on the back foot, although analysts remain of a view these ‘risk on’ episodes are likely to remain fleeting.

The Dollar was sold and commodities and stocks bought amidst an improved global backdrop that is being attributed to two developments: one regarding China and the other concerning the U.S. Federal Reserve. People’s Bank of China Governor Yi Gang was reported to have said the central bank will step up with stronger support for China’s struggling economy, a development that should cushion against investor fears of further Covid lockdowns in the country.

GBP
A quiet Friday for the Pound saw it gain very slight support during the day. This was due to a combination of virtually no domestic data and strengthening risk appetite which saw the Dollar slip a bit. The Pound had a good week against the Euro off the back of better-than-expected GDP data and the markets will continue to monitor the Conservative leadership race for any hints at economic policy. As the UK braces for potentially record-breaking temperatures, investors will be keeping an eye on the data releases this week of which there are quite a few: labour market, inflation, PMIs and retail sales to name the main ones. Many feel that this data will let us know if we are past the peak of the storm or in the eye of it and will therefore provide a strong indicator as to whether the MPC raise rates by 25 or 50 basis points.

EUR
This could be a very interesting week for the Euro given the data and political situation that we can expect this week. Thursday sees the ECBs decision and council member Rehn has already come out and said that the central bank is likely to raise rates by 25 basis points, which would be the first rate rise in over a decade and would lead to Euro strength. What will be of interest, however, is what Putin decides to do with the Nordstream 1 pipeline. It has been closed since the 11th of July for maintenance and is due to reopen on Thursday. Many believe this could be a way for Putin to put pressure on the EU and, if it remains closed, could end up with the EU in several quarters of recession primarily due to their reliance on Russian gas. What could be seen as positive news for the Euro off the back of the ECB’s potential rate hike could very quickly be reversed if Nordstream 1 remains closed.

USD
US retail sales increased for June (above consensus forecasts) as did underlying sales providing an element of support for the greenback. This support was limited, however, as the numbers were not considered significantly stronger than expected. Consumer confidence edged higher but was offset by lower than expected 1-year and 5-year inflation index numbers. Given the Fed’s close monitoring of inflation, fears of a 100 basis point hike subsided with the Dollar losing a bit of defensive support. Markets will monitor the media very closely as the Fed goes into its blackout period for any indication as to what they are thinking. Data will play its part (as mentioned above) but last time a Wall Street Journal report make a correct prediction which will no doubt play its part this time around.

The end of last week saw the Dollar strengthen even further. A global lack of risk appetite coupled with US Fed Chairman Powell’s comments that the US would be pressing ahead with multiple interest rate hikes despite recession fears drove the greenback higher against both Sterling and Euro.

There are now serious concerns over European economies, most notably the UK and investors are now scrambling to work out what this means for interest rate hikes for the remainder of 2022. This has led to both GBP and EUR selling off versus the greenback, which was perhaps exacerbated further due to reduced flows coming into US Independence day celebrations that resulted in increased volatility.

GBP
Sterling experienced another torrid end to the week, hitting fresh lows against the Dollar. This week has started with fresh concerns and increased UK-EU tensions over the Northern Ireland Protocol.  Despite GBP trading lower, the current Brexit agreement complexities are likely to dissuade traders from placing any bullish bets around the British pound. In the latest development, the UK House of Commons last week voted in favour of a bill that would unilaterally overturn part of Britain’s divorce deal from the EU, which is only adding to the uncertainty. This week we see manufacturing PMI data out on Tuesday, BOE members Pill and Cunliffe speaking Wednesday, before a quiet end to the week for GBP where attention will turn elsewhere.

EUR
Last week saw the Euro drop further against the USD, with a number of investment banks now forecasting we may see the currency cross trading below parity by the end of July. There are fresh concerns over the inflationary pressures broadening in the Eurozone amid no end in sight to the soaring energy and commodity prices being driven by the continued conflict in Ukraine. A number of major economies are now expected to fall into recession over the next 12 months and the ECB is under pressure to get out of negative interest rates and give themselves increased headroom to deal with the situation should recession be confirmed across the Eurozone. Economic data releases are relatively light this week with the exception of retail sales for May being released on Wednesday, which will be another indicator as to the likelihood of a recession.

USD
Markets are closed in the US today which will likely be the quiet before the storm of key data releases later in the week. Investors will be looking to see if economic data to be released later this week backs up the current strength of the Dollar, namely June Services PMI data on Wednesday which will give a good update on the state of the economy, as well as FOMC minutes from the June Federal Reserve meeting being released. Thursday will then bring initial employment data before the key data point of the month for USD on Friday, Non-farm payrolls. Investors are still expecting a strong number which could bring about another volatile end to the trading week.

This week we will see the release of many reports from all three major Central Banks, as the last few days of June and the start of July will bring about the usual burst of significant data.

President of the ECB Christine Lagarde is expected to have a speech every day Monday through Thursday to discuss the released data. Bank of England Governor Bailey is expected to speak on Wednesday as UK GDP Growth Rate reports will be released on Thursday. We will also see the release of Nationwide Housing Prices and BoE Consumer Credit reports on Thursday & Friday. The US is expected to have a packed week with multiple speeches from the FED, including FED Chair Powell on Wednesday. House Price Index, GDP Price, Growth & Sales are all expected to be handed to the public on Tuesday & Wednesday.

GBP
The Pound had an average display of strength last week, finishing slightly stronger against both the USD & EUR. The pound had some rather tricky data reports to navigate last week with UK inflation and retail data. Inflation was reported at a staggering 9.1%, up 0.1% from the April print. On Friday, we saw disappointing UK retail sales data with a decline in growth by -4.7%. Price action was relatively unphased as the cost-of-living squeeze is priced in.

EUR
The economic calendar is filled with high-impact events in the coming week focusing on inflation from both the U.S. and EU. EU inflation is expected to hold at 3.8%, but anything higher could trigger hawkish ECB bets and potentially push the euro higher. The aggressive outlook from the Fed is likely to negate any significant euro gains in the coming weeks. A series of important appointments for the Euro including Spanish and German inflation figures on Wednesday, which will inform market expectations for Friday’s Eurozone numbers, and retail sales data from Germany on Thursday. Economists and financial markets will be looking to see if April’s -5.4% month-on-month decline in German retail sales deepened last month and this point, along with the inflation data out on Friday, potentially has the ability to further impact expectations for ECB interest rates in the months ahead. Thursday’s German retail sales number will offer important insight into how Europe’s largest and generally most resilient economy is faring amid the commodity price shock but equally important will be whether this Friday’s Eurozone inflation figures follow in the direction of the UK’s and other central banks.

USD
With the latest FED rate hike now in the rear-view mirror, the US Dollar fell for the first time in four weeks, dropping by -0.26%. EUR/USD rates increased by +0.61% while GBP/USD rates gained +0.44%. Many eyes will be watching the FEDs movements closely this week in anticipation of the data release, as the USD remains the current stable currency in a world of economic unease. Chairman Powell merely reiterated remarks already made in the press conference following June’s decision to lift the Fed Funds rate by a large 0.75% increment, taking it up to 1.75%, although they had a much more palpable impact on stock and bond markets last week than on their first iteration. All of this leaves a lot to be determined this week by the flurry of important economic figures due from the U.S. over the coming days, which includes the May edition of the Fed’s preferred measure of inflation; the Core Personal Consumption Expenditures Price Index. Consensus expects the Core PCE Price Index to rise by 0.4% for last month, up from 0.3% previously, but to fall from 4.9% to 4.8% in annual terms.