Home Daily Commentaries US interest rate sentiment shifts after 100,000 new jobs in September

US interest rate sentiment shifts after 100,000 new jobs in September

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Monday 7 October, 2024

Daily Currency Update

France’s new government, led by Prime Minister Michel Barnier, will present its budget to parliament this Thursday, with the possibility of a €60 billion austerity package, representing 2% of France’s GDP. The deficit is projected to be approximately 6.1% nearly twice the ECB’s target rate of 3%. The newly installed government has stated that it could be 2029 before they reach this target, rather than 2027 as originally agreed. This is unwelcome news as rating agencies, starting with Fitch on Friday, meet this week to set sovereign ratings.

In the UK, investors are pulling back from their optimistic outlook on Britain. Hopes that the new Labour leadership would revive growth and investment are overshadowed by a debt-laden economy and the likelihood of the government hiking taxes in their October 30th budget. The shift in sentiment comes as Prime Minister Keir Starmer and Finance Minister Rachel Reeves struggle to balance their ambitious growth messages with gloomy assessments of the UK’s finances.

The US Dollar rallied strongly on Friday after employment data showed the biggest jump in six months in September. The unemployment rate dropped, and solid wage increases were recorded. All this points to a resilient economy and has forced markets to reassess expectations for the size and timing of interest rate cuts. With tensions in the Middle East not abating, it is difficult to see the Dollar moving lower, at least in the short term.

Key Movers

Investor morale in Europe rose in October after three consecutive months of decline. The Sentix index increased to -13.8 in October from -15.4 in September, beating analysts’ expectations. The index concluded that the downward economic trend has halted for the time being, and the Eurozone is starting to find its way out of stagnating growth. Interestingly, investor sentiment in Germany rose for the first time since June.

Chief Economist of the Bank of England, Huw Pill, said on Friday that the government should move slowly when considering lowering borrowing costs. This statement came only a day after Governor Andrew Bailey suggested they might move more aggressively in cutting interest rates. Pill added that there are still pockets of persistently high inflation, which prompted a small reprieve for the Pound as markets assess the timing and scope of interest rate cuts through the year-end.

Expectations of steep interest rate cuts by the Federal Reserve have influenced markets in recent months, with Treasury yields higher and the US Dollar considerably lower this year. However, the trajectory for rates is now far less certain after the US created 100,000 more jobs last month than expected. This may prompt an unwinding of market positions that anticipated significant interest rate cuts over the next 12 months.

Expected Ranges

  • GBP/USD: 1.3045 - 1.3095 ▼
  • GBP/EUR: 1.1900 - 1.1950 ▼
  • GBP/AUD: 1.9255 - 1.9310 ▼
  • EUR/USD: 1.0935 - 1.0990 ▼

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.

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