Home Daily Commentaries Political gridlock spreads in Europe’s major economies

Political gridlock spreads in Europe’s major economies

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.

| Tuesday 3 September, 2024

Daily Currency Update

In Germany left and right wing parties took the largest share of votes since the second World war in local elections over the weekend. This shift away from traditional political parties occurred in France in recent months and is going to create major problems as Governments try to implement fiscal control which has been lax at best. This could give the single currency a moment of pause after its August rally.

In the UK we saw the release of manufacturing purchasing managers index ( PMI ) this morning which came in as expected at 52.5 With regard to expectations on monetary policy markets now see no rate cut at the Bank of England's September 19th meeting and an 87.2% chance of a 25 basis point cut at their November 7th meeting.

US markets were closed yesterday in observance of their Labour day holiday. Markets now are pricing a 69% chance of a 25 basis point cut by the Federal Reserve at their September meeting and a 31% chance of a 50 basis point cut at that same meeting. As a result the US Dollar has found some support after falling over 2% in August.

 

Key Movers

The next general election in Germany is scheduled for 2025, and based on this weekend’s polling results, it seems unlikely that a strong government will emerge. The political landscape in Europe hasn't appeared this uncertain since the formation of the single currency in 1999. Compounding these challenges is Germany’s economic performance, with GDP contracting in six of the last ten quarters. Astonishingly, the German economy is only 0.2% larger than it was in 2019.

At the Jackson Hole symposium, Bank of England Governor Andrew Bailey remarked that the "second-round effects of inflation" might be less severe than initially feared. However, he provided no guidance on further rate cuts through 2024, which has led to a pause in the Pound's recent rally as markets await more economic and inflation data.

This Friday, all attention will be on the release of the US employment data, specifically the Non-Farm Payrolls report, which will offer crucial insights into whether a 25 basis point rate cut will suffice, or if the Federal Reserve might need to take further action. Fed policymakers have consistently emphasized that no final decision has been made regarding the timing and extent of rate cuts, stating that future actions will depend heavily on incoming data. Therefore, this week’s employment figures are of paramount importance.

 

 

Expected Ranges

  • GBP/USD: 1.3070 - 1.3115 ▼
  • GBP/EUR: 1.1840 - 1.1885 ▼
  • GBP/AUD: 1.9435 - 1.9480 ▼
  • EUR/USD: 1.1015 - 1.1065 ▼

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.