Good morning,
After a promising start to the day yesterday, the pound struggled to hold its ground against the euro and dropped back from the 20-month highs as mentioned in yesterday’s update. Despite this, it is still holding above the 1.18 level, a significant barrier as of late, and remains in a favourable position, compared to the majority of the year. Over the course of the previous 2 weeks, we saw 5 consecutive days of attempts at breaking through 1.18 without success. However, now, the story is different.
Against the dollar, sterling fared better and gained nearly 0.5% throughout the course of the day. With the recent frenzy around the raising of interest rates at the Bank of England, economists have warned that the move could happen too soon and economic growth could stutter in this recovery phase. A rate hike in November is being priced into the market, which could do more damage than good according to a few.
On the other hand, the euro has found strength in the dollar’s decline with the EUR-USD rate currently sitting at three-week highs around the 1.1650 mark. The dollar remains in a vulnerable position thanks to the US Treasury whereas the euro is riding the wave of reassurance that the European Central Bank will continue to support the economic recovery, with analysts from Commerzbank anticipating highs in the region of the 1.1740’s.
Global supply chain shortages continue to be a popular theme with shortages ranging from basic human essentials such as water and medicine in Lebanon and coal and paper in China, to toys and toilet paper in the US. Sadly, the consensus is that in the majority of these cases, shortages may be apparent well into the new year. However, this begs the question, does uncertainty in the global economy give the haven dollar long term strength?
Have a good day.
Holly Tobia-Parkyn, Senior Relationship Manager.
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