Sterling exchange rates seem to have stabilised as we move into the second half of this week despite an acceleration in job losses reported during yesterday’s trading. The count amounted to 46k in the 3 months leading up to July, marking the largest climb in a quarter since the 2008 crisis. To add to this, the real challenge for the UK government and indeed the Bank of England will be to appease the growing concerns of even faster climbs this autumn as the labour market adjusts to these Covid times with weakened financial aid being provided.

The Bank of England have already set their expectations for unemployment to rise as high as 7.5% by the end of this year, at which point further monetary stimulus is scheduled. It will be interesting to see how the MPC’s stance changes if unemployment numbers start to edge higher than expected.

The BoE is expected to keep interest rates on hold on Thursday, however their tone could be a trend setter for sterling exchange rates moving forward. The re-emergence of new Covid cases, the breakdown in Brexit talks and the gradual retraction of the furlough scheme may all lead to a very cautious meeting and added market volatility could be expected as a result.

Earlier this month, Barclaycard produced a report stating there was a sharp spike in consumer spending across the UK in the month of August, with levels even breaching those recorded in august last year. It will be interesting to see if this helps counteract this morning’s inflation levels which showed merge progression at best month on month when compared to July.

Data Releases of Importance

GBP Recovers Some of its Losses

At the time of writing, the pound has been able to recover just under 1% against the euro from the lows seen last week however it does feel the markets might be struggling to provide further support until the UK and the EU make their negotiating position clear. Time will tell as to whether or not the UK’s hand has been strengthened now that PM Johnson’s Internal bill has been cleared through the House of Commons. Former Conservative leaders have already started to raise concerns on how breaching international law might be reflected on the global stage, particularly at a time when the UK government is actively looking to re-establish its own agreements with new trading partners. Incidentally, Foreign secretary Dominic Raad is in Washington today with the mission of reassuring his US counterparts.

Job Cuts Rock the Eurozone

Despite the impressive currency gains euro holders have enjoyed, the markets might be growing wary of troubling signs within the European jobs market too. After last week’s release confirming German industrial output dropped in July, question marks over the slow return of activity across the blocs major players are beginning to surface. Airbus for example, has rolled out a program to accelerate it’s redundancy program by offering French employees a 2 month bonus if they agree to terminating their contracts at the end of October.

The multinational is also offering a short term top up for employees who have accepted to change to lower paid roles. The fact this has partially been made possible by the extra stimulus the French government have provided the aerospace sector, employees in competitor companies are beginning to wonder if they might face the same fate. As it stands, 15,000 jobs are scheduled to be cut from the Airbus head count.

The worry is these job cuts across the bloc could begin to weigh on consumer spending which in turn could have wider ramifications for the European Central Bank. Tomorrow morning’s Consumer price index release from Eurostat could draw added volatility as a result.

Lack of Monetary Policy Action Hampers USD Recovery

US Interest Rate Decision

It should be an interesting day for US dollar exchange rates with the Federal Reserve expected to put a positive spin during today’s Interest rate decision. According to last week’s survey produced by the Wall Street Journal, more and more US economists are expecting the economy to recover at a faster pace than the trajectory laid out by the Central bank back at the start of the summer.

You could argue this switch in sentiment had already started to be reflected in the markets, with EURUSD falling from the mid 1.19s to the low 1.18s since the end of august. Today, the Fed is expected to maintain it’s inflation target of 2% to cover lost ground from this year with further monetary stimulus expected to help the economy hit this mark.

Though the US Senate was at odd to agree a new package with the Republicans pushing for a more conservative approach, the Fed is expected to keep on injecting further cashflow into the economy despite consumer spending having made an impressive recovery in the second half of this summer and business confidence within the manufacturing sector also already showing signs of buoyancy. It will be interesting to see if today’s retail sales figures fall inline with market expectations earlier in the day.

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