Dollar higher after strong US Jobs Report

Daily Currency Update

Last Thursday, the Bank of England chose to raise interest rates by 50 bps from 1.25% to 1.75%. This is the central bank’s largest rate hike since 1995. 8 members of the committee voted in favour of a 50 bps hike, while 1 was in favour of only a 25 bps hike. The rate hike was followed by a release of negative predictions from the BoE. Inflation is predicted to peak in October 2022 at 13.3% for the UK, which would be a 42-year-high. Following this, the UK is expected to face 5 quarters of recession and then a number of quarters of flat growth. GBP sold off against all major currencies off the back of the negative outlook for the UK.

Following a week when the US dollar index hit a one-month low, the US dollar reversed its losses and beat all G10 currencies last week. Friday provided the bounce back for USD as the strong US jobs report eased worries that the Fed will need to keep a hawkish policy to bring down inflation. In the Fed's last meeting it announced its focus on data going forwards, so Friday’s payrolls report, showing employers added 528k non-farm jobs in July, helped the USD recover. At the same time, the rest of US economic data was also robust: the ISM Service sector was unexpectedly accelerated last month.

The latest news from Gazprom is that three other turbines (in Russia) may also require maintenance. There seems little hope of a pick-up in Russian gas supply to Europe anytime soon.