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Pound Heads For Worst Month Since 2016 Against US Dollar; Eurozone Inflation Hits Record High – Business Live

Pound on track for worst month against dollar since 2016The pound is on track for its worst month against the US dollar since the aftermath of the Brexit referendum in 2016.

Sterling has sunk by 4.5% since the start of August, falling from $1.216 to around $1.162 today

That’s worse than its fall in April, and the biggest monthly drop in percentage terms since October 2016.

Today’s losses mean sterling has hit the lowest point since March 2020, during the pandemic crash:

The pound vs the US dollar Photograph: RefinitivAnxiety about the UK economy, which is expected to be driven into recession by the energy crisis, has hurt the pound this month.

The currency weakened despite expectations for more UK interest rate rises, as the US Federal Reserve is also expected to keep tightening policy.

Sterling’s weakness, and the fall in UK bond prices, underlines Rishi Sunak’s warning that international investors could lose faith in the UK economy. However, we should note that other sovereign bonds have also weakened, and the dollar has hit 20-year high against the euro this month too.

John Hardy, head of FX Strategy at Saxo Bank, says the selling pressure on the pound has ramped up, after Goldman Sachs analysts warned inflation could surge over 20%.

Pessimism built in sterling after Goldman Sachs hinted that peak inflation in the UK could reach 22% in early 2023 and downgraded its GDP forecast.

GBP-USD touched lows of $1.1622 before settling around 1.1660. EUR-GBP pushed higher to 0.8600, its strongest level since early July.

Hawkish comments from top Federal Reserve officials also hit sterling, points out Thanim Islam, market strategist at international business payments firm Equals Money:

Sterling continued its decline yesterday as risk sentiment took a hit, dragging equities lower after additional Fed speakers reiterated the need to raise interest rates further.

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Closing summaryTime to recap

UK assets have had a miserable August, hit by worries that Britain is falling into recession as inflation surges towards post-war highs.

The pound is on track for its worst month against the US dollar since October 2016, when Britain’s vote to leave the European Union was still hitting the currency.

Sterling has lost 4.5% versus the greenback in August, and has sunk to just $1.16, the lowest since March 2020.

Government bonds have also been hit this month, as investors sought a higher return for holding UK gilts.

Fears of a long recession and the likelihood of higher public spending to cope with the cost of living crisis has sent the interest rate on Britain’s debts soaring towards its biggest monthly rise in almost 40 years.

10-year bonds, the benchmark, are headed for their sharpest monthly fall since 1986, with five-year and 20-year bonds also seeing the largest rise in yields in decades.

Here’s the full story:

Former chancellor Rishi Sunak has warned that the markets could lose faith in the UK.

Sunak, one of the two candidates to succeed Boris Johnson as PM, told the Financial Times it would be “complacent and irresponsible” to ignore the risk of markets losing confidence in the British economy, saying:

“We have more inflation-linked debt by a margin than any other G7 economy – basically more than double.”

The cost of living crisis deepened this month, with shop price inflation hitting the highest levels since 2008.

The rapidly rising price of food including milk, margarine and crisps pushed prices up in the shops, in a bleak situation for consumers.

The government’s £400 payment to help families with their energy bills will not reduce inflation, after the Office for National Statistics decided it would treat the money as income.

Rising inflation has also hit UK business confidence, and is expected to end the UK’s house price boom.

John Lewis is to offer free food to all its workers, including temporary staff, during its peak Christmas trading period as a way to help with the cost of living.

The eurozone’s inflation crisis has deepened too, with prices rising at a record 9.1% in the last year.

Energy prices and food drove up the cost of living, with gas shortages and drought disruption hitting Europe’s economy. It raises the chances of another large interest rate rise from the European Central Bank, which meets next week.

Russia has tightened the pressure on Europe’s energy market, by starting a three-day shutdown of its Nord Stream 1 gas pipeline to Germany.

But UK wholesale gas prices have eased back from their recent highs.

The oil prices has dropped too, with Brent crude currently down 2.7% at $96.60 per barrel, on concerns that demand will slide if major economies fall into recession.

Jobs growth in the US was muted this month, according to the latest payroll report from ADP.

And European stock markets are ending August in the red, with the FTSE 100 down 0.8% at a one-month low.

Wall Street is a little stronger, though, with the Nasdaq index of tech stocks now up 1%.

The UK rail union has announced a nationwide 24-hour strike next month, which will coincide with the Labour party’s autumn conference.

And even the Panini sticker album has been hit by inflation – collecting the 2022 World Cup edition will cost you around £870.

Pound to plumb new depths, predicts analystsAnalysts at Capital Economics have warned that the pound will continue to slide in the months ahead, and could hit an all-time low in 2023.

In a new research note, they say:

Our forecast that the energy crisis will push the euro-zone and UK economies into recession while the US gets away with a milder slowdown suggests that the euro and the pound will weaken further against the US dollar.

Capital Economics forecasts the pound will fall from around $1.17 this week to around $1.05 by the middle of next year.

That would leave it below the levels reached before the 1985 Plaza Accord ($1.09), after the UK left the ERM in 1992 ($1.43), during the 2008/09 Global Financial Crisis ($1.38), after the 2016 Brexit vote ($1.21) and during the 2020 COVID-19 crisis ($1.21).

In fact, $1.05 would be an all-time record low.

European debt market hit by historic sell-off after rate rise betsEurope’s bond market is on course for its worst month on record, the Financial Times flags.

Bond prices have weakened as investors have bet that soaring inflation will force the European Central Bank and Bank of England to make large increases in interest rates.

The selloff has continued today, as eurozone inflation hit a new record of 9.1%.

Here’s the details:

The region’s market for high-grade government and corporate debt posted a fall of 5.3 per cent in the month to Tuesday, the biggest drop since the Bloomberg Pan-European Aggregate Total Return index began in 1999.

The decline has been broad, with UK, German and French debt all hit by heavy selling in a reversal of July’s gains.

Wall Street has opened cautiously after its recent losses.

The tech-focused Nasdaq has gained 0.5%, but the Dow Jones industrial average of 30 large US stocks is slightly lower, as anxiety over US interest rate rises weighs on the market.

Here’s how the major U.S indexes opened trading today

Dow Jones $DIA opened at $31,808.25 up 0.05%

S&P 500 $SPY opened at $4,000.63 up 0.36%

NASDAQ Composite $QQQ opened at $11,975.51 up 0.78%

— Stock Market News – Evan (@StockMKTNewz) August 31, 2022 UK wholesale gas prices are falling sharply for the second day running.

The day-ahead UK gas prices has dropped by 15% to 382p per therm, the lowest in over aweek (although still around three times more than a year ago).

The month-ahead gas price has dropped around 13%, having hit the highest levels since March last week.

The fall will be welcomed by energy-intensive businesses. They come after Europe pledged an emergency intervention in the energy market, and longer-term “structural reform” to stop soaring gas prices pushing up electricity costs.

If energy prices keep dropping, then it could mean the energy price cap rises by less than feared in January. But that decision is around three months away.

Inflation hits Panini 2022 World Cup sticker album

Rupert Neate

The 2022 Soccer World Cup sticker album, released by the publisher Panini. Photograph: Sipa US/AlamyInflation has come for the football sticker album. Collecting and completing the official Panini Fifa World Cup Qatar 2022 album will cost fans an average of about £870.

Panini, which first produced a World Cup sticker album for the 1970 tournament in Mexico, has priced five-sticker packs for the Qatar 2022 album at 90p each. That is a 12.5% increase on the 80p cost of a five-sticker pack for the Russia 2018 album. For Euro 2016 a pack cost 50p.

There are a total of 670 Qatar 2022 stickers, which first went on sale last Thursday, to collect. However, because of duplicates, fans would – on average – need to buy 4,832 stickers to complete the album, according to calculations by Paul Harper, a mathematics professor at Cardiff University.

At 18p a sticker that works out at £870. The total average cost has increased from £770 in 2018 (when there were more stickers in the album).

Here’s the full story:

Joanna Partridge

Back in the UK, the Co-operative Group has agreed to sell its petrol forecourt business to its supermarket rival Asda for £600m, saying it would use the money to reduce debt and open more convenience stores.

The sale includes 129 petrol stations with grocery stores attached located across the UK, representing 5% of Co-op’s retail estate of more than 2,500 outlets, as well as three planned petrol station sites that are yet to be developed.

Canada didn’t grow as fast as expected in the second quarter of the year, with its economy likely to have shrank last month.

Canadian GDP rose by around 0.8% in April-June, new data shows, making it the second fastest-growing G7 nation after Italy, which expanded by 1%.

Canada beat France and Japan, which both grew by around 0.5% in Q2, while Germany only grew by 0.1%, the UK economy shrank 0.1%, and US GDP fell 0.2%

But, analysts had expected Canadian GDP to grow around 1.1% quarter-on-quarter.

Statistics Canada estimates GDP fell 0.1% in July, unwinding a 0.1% rise in June.

US job growth slows, reports ADPOuch. US companies sharply slowed the pace of hiring in August amid growing fears of an economic slowdown, according to payroll processing company ADP.

ADP reports that US private payrolls rose by 132,000 this month, a slowdown on July’s 270,000, and below forecasts – suggesting the US jobs market isn’t as strong as thought.

👀🇺🇲 ADP June US employment 132K vs 288K expected

— Michael Goodwell (@MichaelGoodwell) August 31, 2022 ADP have just revised their methodology, because their payroll data has a poor record in predicting the official monthly jobs report – the Non-Farm Payroll, due on Friday.

Ooof! That ADP #employment number doesn’t exactly jump off the screen at you. Only 132K jobs created in August, compared with a forecast of 288K. “Official” Labor Department data set for Friday of course.

— Mike Larson (@RealMikeLarson) August 31, 2022 India has posted its fastest annual growth in a year, although rising interest rates could slow the economy.

India’s economy grew 13.5% year-on-year in the April-June quarter, official data shows.

That’s a pickup on annual growth of 4.1% in January-March, but below forecasts of 15.2%.

There are fears growth could sharply slow this quarter and the next two as higher interest rates hit activity, Reuters says.

Over in the US, mortgage demand has fallen again as the once-hot American housing market keeps cooling.

Mortgage applications to purchase a home dropped 2% last week, and tumbled 23% compared with a year ago, as rising interest rates deterred people from trying to buy a home.

Powell has implied that housing’s plight will worsen. Pockets of home price deflation impend. The MBA’s index of homebuyer mortgage applications sank by -24% YY for the week-ended August 26 to its lowest reading since April 17, 2020. #FOMC #housing #mortgage

— John Lonski (@LonskiJohn) August 31, 2022 The prospect of UK inflation surging well above 10% in the coming months is hurting the pound and British government bonds.

Scotiabank’s chief FX strategist, Shaun Osborne, said money markets now point towards the Bank of England raising interest rates to 4.25% next year, up from a current 1.75%.

“This would leave the BoE policy rate among the highest of the major economies but that may still not compensate investors sufficiently for inflation that is expected to run well into double digits early next year while the economy tilts into recession.”

Pound on track for worst month against dollar since 2016The pound is on track for its worst month against the US dollar since the aftermath of the Brexit referendum in 2016.

Sterling has sunk by 4.5% since the start of August, falling from $1.216 to around $1.162 today

That’s worse than its fall in April, and the biggest monthly drop in percentage terms since October 2016.

Today’s losses mean sterling has hit the lowest point since March 2020, during the pandemic crash:

The pound vs the US dollar Photograph: RefinitivAnxiety about the UK economy, which is expected to be driven into recession by the energy crisis, has hurt the pound this month.

The currency weakened despite expectations for more UK interest rate rises, as the US Federal Reserve is also expected to keep tightening policy.

Sterling’s weakness, and the fall in UK bond prices, underlines Rishi Sunak’s warning that international investors could lose faith in the UK economy. However, we should note that other sovereign bonds have also weakened, and the dollar has hit 20-year high against the euro this month too.

John Hardy, head of FX Strategy at Saxo Bank, says the selling pressure on the pound has ramped up, after Goldman Sachs analysts warned inflation could surge over 20%.

Pessimism built in sterling after Goldman Sachs hinted that peak inflation in the UK could reach 22% in early 2023 and downgraded its GDP forecast.

GBP-USD touched lows of $1.1622 before settling around 1.1660. EUR-GBP pushed higher to 0.8600, its strongest level since early July.

Hawkish comments from top Federal Reserve officials also hit sterling, points out Thanim Islam, market strategist at international business payments firm Equals Money:

Sterling continued its decline yesterday as risk sentiment took a hit, dragging equities lower after additional Fed speakers reiterated the need to raise interest rates further.

As the month of August draws to a close, there’s no let up for markets with European indices under pressure,

Victoria Scholar, head of investment at Interactive Investor, has summed up the moves:

The FTSE 100 is leading the declines, slumping by more than 1% with energy firms like National Grid, BP, Shell, SSE and Centrica dragging the index down heavily. Underlying oil and gas prices have fallen sharply dragging stocks in the sector into the red.

Brent and WTI are both down by more than 3% each amid concerns about the state of the global economy, the threat of higher interest rates and increased covid restrictions in the world’s second largest economy, China.

Gas prices are also under pressure thanks to German gas stores filling ahead of expectations.

The FTSE 100 is on track to shed almost 2% in August, reversing some of July’s positivity. Risk-off sentiment and fears about inflation have also hit the bond market with UK 10-year government bonds are on track for their worst monthly decline since September 1986.

British government bonds are continuing to sell off rapidly today.

The yield, or interest rate, on short dated two-year bonds has jumped over 3% for the first time since 2008.

The 5-year gilt yield has risen to the highest since April 2010, while 20-year gilt yields are above 3.2% for the first time since 2014.

Yields move inversely to bond prices; as investors ditch UK debt, the effective interest payment for holding the debt goes up.

Both the five-year and 20-year gilts are on track for their biggest monthly falls since data provider Refinitiv’s records began in the mid-1980s.

As explained earlier, the benchmark 10-year gilts are on track for their worst month since 1986.

FTSE 100 hits one-month low as markets slideEuropean stock markets are ending August firmly in the red, as economic anxiety hits shares.

In London, the FTSE 100 has droped by 90 points, or 1.2%, to 7270 points, a five-week low as all the gains in early August gains are wiped out.

Germany’s DAX and France’s CAC are also down 1%, dragging the pan-European Stoxx 600 index to the lowest since mid-July.

European stock markets this morning Photograph: RefinitivToday’s jump in eurozone inflation to fresh record levels has disappointed investors, as Chris Scicluna, head of economic research at Daiwa Capital Markets, says:

“The most disappointing aspect of the inflation data is the core measure, where we have a bigger increase than in the headline measure.

“Even though we will get more support measures to help ease the gas crisis, inflation will move higher unless policymakers can get a better grip on gas markets in the euro area.”

Sri Lanka’s inflation rate has surged to over 64% this month, as its economic crisis deepens.

Consumer prices were 64.3% higher than a year ago, Sri Lanka’s statistics department reports, following a 60.8% jump in July.

Food price have climbed by a whopping 93.7%, while transport costs were a staggering 148% higher than a year ago, due to the surge in fuel costs.

Sri Lanka’s consumer prices have now accelerated for 11 straight months, as the worst economic crisis since independence in 1948 have led to shortage of food, fuel and medicines.

Sri Lanka’s headline inflation climbs to a fresh record in August, although the spike is unlikely to force the central bank to resume tightening interest-rates just yet t.co/DOM7wCn7hH

— Bloomberg (@business) August 31, 2022

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