Image of Tony Redondo of Cosmos Currency Exchange with a blue and gold background announcing his latest fortnightly blog 'Currency Matters' which is on No KO For The Pound!

No K.O. For The Pound

Currency Exchange Rates Update

The Pound was the best performing major currency in the first half of 2023. However, things took a downward turn with September being the worst month of the year to date for the pound. Providing an opportunity for currency sellers to take advantage of much better recent rates despite plenty of signs of a resilient UK economy. In short, the Pound has been battered and bruised with little prospect of a K.O.

In the past fortnight: –

  • The Pound has gained half a cent against the Euro. But the Pound is still over 1.6% down from the high registered on 12th July in 2023.
  • There has been practically no change against the Dollar. Again the Pound being over 7.2% down from its 2023 high registered on 14th July.
  • And the Pound is up half a cent against the Australian Dollar. And this is still over 4% down since registering its 2023 high on 19th August.

What’s In The News?

In The UK…

Good News

Data from the Office for National Statistics (ONS) showed the UK’s recovery from the pandemic was stronger than initially expected.

The UK economy is now thought to be 1.8% larger than it was in the final quarter prior to the pandemic hit. Previous estimates had suggested that the UK economy had shrunk 0.2% in that period. This means the UK’s recovery has been stronger than Germany and France.

ONS chief economist Grant Fitzner said “Our new estimates indicate a stronger performance for professional and scientific businesses due to improved data sources. Meanwhile, healthcare grew less because of new near real-time information showing the cost of delivering services.”

Bank of England (BoE) Governor Andrew Bailey warned that policymakers should take no chances with financial stability despite the “opportunities” that Brexit has created for the UK.

In an interview with Prospect Magazine, Bailey emphasised the need for a “clear and cautious” approach when determining the direction of regulation and structural changes. Stressing that the UK’s financial markets are a “global public good”.

Bailey was relatively optimistic about the effect of Brexit on the City. Indicating that Brexit’s impact has been less severe than the “dire predictions” made before the referendum. In fact, he argued that Brexit had “created opportunities” for the UK, particularly in financial services.

The North Sea Transitional Authority gave the go-ahead for the Rosebank oil and gas field development. The first major new oilfield in the North Sea for many years. With private investors and the government both signalling final approval. Equinor and Ithaca Energy will invest around £3bn in the project.

Located around 80 miles north of Shetland. The field is expected to deliver around 200m barrels of oil in ‘phase one’. Majority shareholder Equinor aim to begin production at the site by 2026.

The latest data from the Society of Motor Manufacturers and Traders (SMMT) showed new car registrations soared last month. This pent-up demand for new vehicles helped the auto sector motor towards its 14th consecutive month of growth. September was the second busiest month of the year with a 21% jump taking registrations to 272,610.

The figures come just weeks after PM Rishi Sunak rowed back on one of the government’s central automotive policies. A 2030 ban on the sale of new petrol and diesel vehicles, delaying its implementation until 2035.

The CBI (Confederation of British Industry) financial services survey, the balance of financial services firm reporting a rise in output versus a fall was 27%, down from 42% recorded in the second quarter of this year. Still significantly higher than the long-run average of 13%. Looking forward, 41% of firms expected business volumes to pick up over the next quarter.

Louise Hellem, CBI chief economist said “It’s great to see financial services firms reporting another positive quarter, with optimism and volumes growth both firm, and activity expected to pick up further in the months ahead. The government should look to build on this positive momentum by maximising financial services regulation as a lever for broader economic growth”.

Think tank ZYen reported the world’s top financial centres showed, for the first time, London beat San Francisco in a ranking of global fintech hubs.

The new rating showed London in second place for fintec. Racing ahead of San Francisco in third and just behind New York.

Not so good news

According to the Chartered Institute of Procurement & Supply (CIPS) in their S&P Global and CIPS UK Construction purchasing managers index (PMI) UK housebuilding fell deeper into negative territory in September. It’s the steepest fall in construction for three years.

Other construction sectors including civil engineering and commercial building are also in contraction having seen “solid growth” throughout the summer.

John Glen, chief economist at CIPS said “After some positive signs over the summer months, September saw a bump back down to earth for commercial construction. As concerns over the future of the economy hampered demand and delayed new projects”.

CIPS also reported that UK manufacturing declined for the seventh successive month. However, September’s reading was stronger than recorded in August. But still among the weakest readings seen in the past 14 years.

Rob Dobson, director at S&P Global Market Intelligence said “Demand was impacted negatively by ongoing market uncertainty, the cost-of-living crisis, and weak conditions in overseas markets. September saw the manufacturing sector still mired in contraction territory, as weak conditions at home and abroad hit new order intakes and led to a further scaling back of production volumes. The cost-of-living crisis and recent rapid rise in interest rates are taking their toll, according to producers, raising the possibility of the broader UK economy slipping back into contraction during the second half of the year”.

According to the Halifax house price index, annual average house prices fell for the fifth consecutive month. As buyers grappled with rising borrowing costs. The average cost of a property fell by 4.7% in the year to September. Having declined by 4.5% in the year to August.

The Nationwide reported that UK house prices dropped for the eighth month in a row to September 2023 by 5.3%. It also said prices were unchanged compared to August.

Retail woes continue with fashion retailers hit hard by the hot weather and the cost-of-living crunch. With growth up just 0.2% on last year. BDO said this was the 14th month in a row that sales growth has been lower than the rate of inflation. Meaning that sales volumes have continued to decline each month, painting a gloomy outlook for retailers. A September footfall reading from the British Retail Consortium (BRC) showed high street traction decreased by 1.7% year-on-year, against a 0.9% decline in August.

In The USA…

President Biden cites strong job data as proof that “Bidenomics” has steered America out of the pandemic with robust employment. Thelatest NFP (Non-farm payrolls) data out last week unexpectedly surged in September to almost double what was expected by analysts. The NFP data came in at 336,000, the most since the start of the year and the unemployment rate held at 3.8% whilst wages rose at a modest pace. The US economy needs to create roughly 100,000 per month to keep up with growth in the working-age population.

For the Federal Reserve, the labour market’s strength threatens to hinder progress on curbing inflation. That is the flip side of the coin, since the central bank may see this as an excuse to raise US interest rates again. Traders are already betting on another Fed rate increase before this year ends.

Richard Carter, head of fixed interest research at Quilter Cheviot said “The markets will have to come to terms with higher interest rates for longer. The surge in new jobs was unexpected and adds to the belief that the US economy remains too hot, and that interest rate cuts will not be seen for a while. Bond yields have been rising over the past month and it is data prints like this that make the risk of inflation spiking again appear more of a reality. The fact is that interest rates are not yet having the complete desired effect of dampening demand and tightening conditions.”

But dark clouds are gathering over the economy amid soaring US Treasury (bond) yields. Having risen to a 16-year high and political dysfunction in Washington this led some to speculate that we’ve reached “Peak Biden”. Leaving the way clear for Donald Trump to win the US Presidential elections in November 2024.

Last week, the US Congress voted to avert a government shutdown. Due to a last-minute measure being agreed that keeps the government funded until mid-November. But this leaves out billions of dollars of Ukraine aid. Making Republican Kevin McCarthy the first Speaker in the history of the US House of Representatives to be removed from the position.

The surge in US interest rates over the past year has come at a historic pace. Business bankruptcies are rising at the fastest rate since the pandemic whilst companies are still taking on more debt.

US mortgage rates have hit a two-decade high, topping 7.5% for the first time since November 2000. Applications plummeted due to soaring mortgage rates and sky-high home prices in one of the least affordable housing markets ever

The latest US poll shows Trump leads circa two to one over Biden on dealing with inflation, the economy and immigration.

In The EU…
Eurozone inflation has fallen to its lowest level for almost two years. Boosting hopes of easing the generational surge in consumer prices, potentially leading to an ECB (European Central Bank) interest rate pause.

German Factory Orders climbed to 3.9% month on month. Higher than predicted and an encouraging sign that the Eurozone’s powerhouse economic woes may have bottomed off.

The German housing market has since prices fall by nearly 10% since the end of the second quarter of 2022.

Others
The gold markets are experiencing an interesting phenomenon right now with the so-called “Shanghai premium.” This is when gold bullion traded in China sells for higher rates than the global price. Whilst not unusual for Chinese “onshore” gold to trade at a premium to “offshore” gold, the current premium is the highest (in price terms) ever.

Bloomberg Economics colleagues David Qu and Chang Shu report “soaring demand for gold is the latest sign of economic anxiety in China.” Domestic sales of gold bars and coins rose by 30% on the year in the first half of 2023.

Given that the Chinese Yuan currency has weakened sharply during 2023 and a weak property market means that housing is no longer the go-to asset for sheltering wealth, this “capital flight” argument seems to make sense.

Charlie Morris of ByteTree is a long-time gold watcher. He points out that from a Chinese investor’s point of view, the nice thing about gold is that it’s “an effective way to get wealth ‘out of the country’ while still being in the country.”

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Quote
This week’s quote is from Paulo Coelho, author of many books including the excellent ‘The Alchemist’

“The pain of yesterday is the strength of today.”

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