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5th September - Weekly FX Update

Top Currency Pairs Monday 5th September 04:00 UTC GBP/USD: 1.14750 (Last Week: 1.17013) EUR/USD: 0.99140 (Last Week: 0.99989) GBP/EUR: 1.15744 (Last Week: 1.17025)

Market News

Pound Sterling Pound Sterling continued to struggle last week as the cost of living crisis dominated UK media headlines ahead of the new Prime Minister announcement today. It is widely expected that the winner will be Liz Truss, who will very quickly have to reveal her plan in facing a difficult winter ahead. Whatever plans are laid out could be key for the Pound this week to slow losses as investors hope for a revival of market appetite for the British currency, and assuring the independence of the Bank of England to handle monetary policy would be a good start in alleviating many analysts concerns. The political situation for the UK economy will be much clearer by the end of the week, but in the meantime, expect the Pound to be extremely volatile.

Euro The Euro has opened lower this week against USD, but higher against GBP with a dire UK economic outlook amid the new Prime Minister announcement at 12:30 BST today. Markets have priced in a high probability of a 0.75% increase at the next European Central Bank interest rate decision on Thursday, after inflation year on year reached 9.1% in August. There is a slight threat to this, with Gazprom having now indefinitely suspended gas flows to Germany via the Nord Stream pipeline, however economically, this is not an issue which the ECB has any control over. A rate hike of this size would mark the largest increase to date (bar a technical adjustment in 1999) and would be positive for the Euro, as September offers the strongest opportunity to send a clear signal to other central banks of determination.

U.S. Dollar Today is Labor Day in the US, so USD orders will settle on the 6th September. Stronger than expected labour market data released on Friday kept the Dollar up last week, as non-farm payroll grew by adding 315k jobs in August, exceeding expectations. The payrolls report did confirm softer wages, but in an overheated economy, marginally bad news should be considered as good news. The trend seems to remain in favour of further gains for the Greenback as there is little reason for the Federal Reserve to question its current stance on tightening monetary policy aggressively. The GBP/USD in particular is closing on its lowest level since early 1985. Looking ahead, tomorrow will see ISM Services PMI for August, expected to edge lower, and Fed Chairman Jerome Powell is set to speak at the Cato Institutes Annual Conference on Thursday.

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