Tuesday 31st August – On Tuesday, the Pound behaved erratically, while it also slumped against many of its rivals after investors still had concerns about the economic recovery in the UK. Consumer credit dropped by a considerable amount in July, with the £0.042bn coming well under the expected rise of £0.441bn. This is proof that increasing infections is causing spending to decrease, all of which impacts the recovery of the economy. At the end of trading, according to the Foreign Exchange Market the currency finished at 1.1646 against the Euro and 1.3754 against the US Dollar.
It was a muted day for the Euro yesterday even though the recent CPI reading indicated that inflation had reached a 10-year high of 3%. However, any gains were limited as the ECB continues to take a dovish stance while the VAT cut in Germany last year would have helped to nudge inflation higher.
The US Dollar started on the back foot but managed to regain some losses later in the day, even after US consumer confidence struck a six month low. The sharp increase in US Treasury yields helped to give the currency a boost as the ten-year yield broke through the 1.30% marker.
Wednesday 1st September
On Wednesday, the release of the finalised manufacturing PMI in the UK confirmed that UK factory activity had slowed down, forcing the currency to struggle.
While it was revised slightly higher, the data aligned with the ongoing supply chain issues and staff shortages that have been caused by both increasing Covid-19 cases and Brexit. This was added to the concerns around the economic recovery in the UK, seeing the Pound finish at 1.1631 against the Euro and 1.3772 against the US Dollar according to the Foreign Exchange Market.
The Euro strengthened through yesterday’s session as there was an improvement in unemployment figures. This resulted in investors hoping for a more hawkish approach from the European Central Bank to the monetary policy, especially after the CPI release on Tuesday which also helped to bolster the single currency.
A drop in US Treasury yields caused the US Dollar to weaken yesterday while poor jobs data also heaped misery on the Greenback. The news that the US private sector hired just 374,000 new workers in August, which came under the 613,000 that was predicted, forcing the currency to lose some ground and weaken.
Thursday 2nd September
The Pound had an improved run on Thursday, as it took advantage of its rivals weakening.
The UK supply chain issue is still a cause for concern as it could lead to high prices and labour shortages. Despite there being no real driver for the gains, the currency finished at 1.1653 against the Euro and 1.3837 against the US Dollar according to the Foreign Exchange Market. The final services PMI released today could show that activity has slowed in the service sector and that could weigh on the Pound.
The Euro lost some ground against many of its rivals yesterday as a lack of data resulted in very little movement. However, the losses were limited by the negative correlation between the Euro and the US Dollar, as the latter dropped throughout the day.
The US Dollar ticked even lower yesterday, eventually reaching a two-week low against the Pound and a one-month low against the Euro. This came as a result of a change in market sentiment as an increase in risk was put down to some positive data releases with non-farm productivity, initial jobless claims and factory orders all coming in above expectations.
Friday 3rd September
During the trading session on Friday, the Pound lost some gains but the afternoon saw it make up for these losses as it made gains against most of its peers.
Despite poor services PMI for August which dropped to 55 from 59.6 which came from a lack of consumer spending and staff shortage, the Pound still managed to make some gains. This saw the currency finish at 1.168 against the Euro and 1.3861 against the US Dollar according to the Foreign Exchange Market.
The Euro lost ground against a number of its rivals on Friday as the single currency was hampered by a drop in retail sales, despite the services PMI being relatively positive. While service activity slowed in August, it did remain close to the previous month which saw it reach a 15-year high. However, the decline in retail sales of 2.3% saw it struggle throughout the day.
The US Dollar continued to lose momentum and continued the week-long trend of losses, especially as the non-farm payrolls report came in lower than expected. There were just 235,000 added last month which is the worst figure for 7 months and this was put down to the rise of the Delta coronavirus variant which is causing issues for the labour market.