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Sterling under pressure from headlines of article 16 being triggered by Truss

Thursday 1 September, 2022

Daily Currency Update

The pound finished  with its worst performance versus the US dollar since October 2016. Wednesday’s losses mean sterling has hit the lowest point since March 2020, during the pandemic crash, but only remained this low momentarily. The pound weakened despite expectations for more UK interest rate rises, as the US Federal Reserve is also expected to keep tightening policy, but it was the story that Liz Truss may trigger Article 16 of the Northern Ireland protocol days after becoming Prime Minister after September 5th. This has caused uncertainty for the current state of the Brexit agreement and suggests there could be an overhaul in the way the border between Northern Ireland and Republic of Ireland is dealt with. The leadership race continues as favourite Liz Truss has ruled out introducing new taxes if she becomes the UK's next prime minister but plans to tackle rising bills with tax cuts.

Key Movers

The US dollar was one of the strongest performing currencies in August, after Jerome Powell's comments last week at the Jackson Hole Symposium which suggested that the Federal Reserve will move full steam ahead with controlling inflation by hiking interest rates without worrying too much about the impact of this on the US economy and the fears around causing a recession. US ADP Non Farm employment data for June reported a weaker than expected 132,000 vs 288,000 expected, which may have been the reason for the US dollars slight drop off in yesterday afternoon's session. Today we have US PMI data, which will be watched closely for signs of the performance of the US economy and its ability to absorb aggressive rate hikes from the US Central bank. Eurozone inflationary data came in near expected at 9.1%, which suggests that the single bloc, with its proximity to the war in Ukraine and the knock on supply chain issues, has been equivalently impacted by high inflation levels as the US and the UK. This could support the single currency as speculation grows of the ECB having to hike rates aggressively too.

Expected Ranges

  • GBP/USD: 1.1510 - 1.1645 ▼
  • GBP/EUR: 1.1470 - 1.1595 ▼
  • GBP/AUD: 1.6870 - 1.7085 ▲
  • EUR/USD: 0.9880 - 1.0035 ▼