Category Archives: Sterling

What’s behind the record FTSE 100 high?

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Hopes of a UK interest rate cut and easing geopolitical tensions are not the only reasons for the intraday peak reached this morning

The UK stock market has hit an intraday record high, lifted by hopes of interest rate cuts and easing geopolitical tensions, after setting a new closing high on Monday. The FTSE 100 index touched 8,076 points at the opening bell on Tuesday, surpassing a previous high of 8,047 reached in February 2023. We explain what is behind the rising London market.

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MP calls Royal Mail delivery cuts a ‘slap in the face for families’ – as it happened

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Live, rolling coverage of business, economics and financial markets as UK postal service says it wants to cut 1,000 jobs and cut delivery days

The question on economists’ lips after the surprise easing of eurozone inflation is: will the European Central Bank (ECB) cut interest rates as early as this month?

The ECB’s rate-setting governing council, led by president Christine Lagarde, meets next week. Economists expect the council to cut rates in June, but surprising data and some doveish comments from some members of the council appear to have put an April cut into play.

While at first sight this looks like it opens up a possible rate cut in April, the ECB is unlikely to act this month. More data on wage growth will come in May, and the ECB needs to be certain of its path. In President Lagarde’s own words: “we will know a little more in April, but we will know a lot more in June”.

Christine Lagarde’s previous indication that the ECB may not commit outright to a path of rate cuts suggests a cautious approach, but the consensus among economists leans towards a potential cut as early as June, pending further data on wage growth trends.

The challenge here for the ECB is that reaching the last mile target inflation rate of 2% may prove more arduous than anticipated, with incremental decreases seen as most likely.

Will the labour market tighten further now that GDP growth looks to be rebounding? We doubt it and, in fact, suspect the unemployment rate will edge up over the coming months.

A still-low unemployment rate doesn’t necessarily mean wage growth will remain at today’s highs, so it need not worry the ECB nor prevent it from starting its easing cycle. We think wage growth will come down, in line with the fall in inflation in recent months as workers’ negotiating power diminishes. A recovery in productivity would support wage growth even as inflation eases. We think productivity growth is now improving, but slowly does it.

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Bitcoin hits new record high above $70,000; US investor ends Currys chase – business live

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Live, rolling coverage of business, economics and financial markets as exchange-traded funds help biggest cryptocurrency rally

The European Commission’s use of Microsoft email and office software broke its own privacy rules, an EU privacy watchdog has ruled.

Microsoft’s software transferred personal data outside the EU, breaching privacy rules, according to the European Data Protection Supervisor.

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Digital pound should not be considered until risks addressed, MPs warn

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Treasury select committee highlights concerns over data privacy and increased possibility of bank runs

The idea of creating a digital pound should not even be considered until the UK government and Bank of England address concerns over data privacy and the increased risk of bank runs, a parliamentary committee has warned.

MPs on the Treasury select committee said that while it was true that the rollout of a central bank digital currency could trigger fresh innovation and competition in the payments sector, serious questions remained about whether the positive effects outweighed the risks and costs.

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Liz Truss refuses to commit to raising benefits in line with inflation – UK politics live

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Prime minister says she is committed to ‘supporting most vulnerable’ but stresses need to be ‘fiscally responsible’

Truss was asked about her views on what she has described as “obstacles to growth” replying that she was intent on pressing ahead with plans to remove “top-down” housing targets.

It’s wrong that how houses are built is centrally directed. Instead we are setting up new investment zones, which are places that people want homes to be built and they want businesses to be built. It’s an approach based more on local consent than centrally based targets.

That is the balance that she needs to strike. Yes there is more that we can do to get the highly skilled people we need in our economy but we also need to train more people.

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‘UK travel is on sale’: plunging pound attracts US visitors

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Operators catering for inbound tourists enjoy best month for bookings in three years

The plunging pound may cause British holidaymakers to choke at the prices if and when they next choose to go abroad. But one slice of the travel industry is seeing a silver lining in the storm clouds.

Tour operators catering for visitors are quietly calling it their best month for bookings since October 2019 as US tourists take advantage of sterling’s tumble.

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OBR: we offered to update forecasts in time for ‘mini-budget’ – live

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Watchdog said it was ready to supply information, but was not asked to do so by Kwasi Kwarteng

Q: Can you reassure listeners that your judgment is better than that of people like the IMF and the Bank of England, who have criticised the mini-budget?

Truss says:

I have to do what I believe is right for the country and what is going to help move our country forward.

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Bank of England in £65bn scramble to avert financial crisis

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Bank of England left with no action but to intervene after Kwasi Kwarteng’s mini-budget

The Bank of England has been forced into emergency action to halt a run on Britain’s pension funds after the impact of Kwasi Kwarteng’s ill-received mini budget prompted fears of a 2008-style financial crisis.

Threadneedle Street said the fallout from a dramatic rise in government borrowing costs since the chancellor’s statement had left it with no choice but to intervene to protect the UK’s financial system.

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Truss ‘standing by Kwarteng’ as Treasury defends plans despite market turmoil – as it happened

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No 10 says PM has faith in chancellor, as Treasury minister says tax cuts are the ‘right plan’. This blog is now closed

Q: When would you get debt falling as a proprotion of GDP?

Starmer says Labour does want to get that down.

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Labour says financial turmoil is ‘just the tip of the iceberg’

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Shadow health secretary condemns Kwasi Kwarteng’s ‘reckless gamble’ and says Labour ‘cavalry is coming’

The shadow health secretary, Wes Streeting, has said the “cavalry is coming” with the Labour party as he warned that the current turmoil on financial markets was “just the tip of the iceberg”.

Streeting criticised last week’s mini-budget from the chancellor, Kwasi Kwarteng, as a “reckless gamble”.

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Bumper City bonuses expected from takeover frenzy after pound hits record low

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UK firms now temptingly cheaper, with a ‘wave of bids’ from overseas buyers meaning payouts for bankers

Bankers could rake in bumper bonuses from a “wave of bids” by overseas buyers for UK businesses made temptingly cheaper as a result of the plunge in the pound against the dollar. A fresh frenzy of merger and acquisition activity would mean a ramp-up in payouts for City dealmakers.

Sterling fell by nearly 5% at one point on Monday to $1.0327, its lowest since Britain went decimal in 1971. The currency has fallen by more than a fifth against the dollar this year.

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Labour delegates urged to back PR to end ‘trickle-down democracy’ – UK politics live

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Latest updates: Labour delegate says current electoral system allows Tories to get away with measures like ‘protecting bankers’ bonuses’

In June, as the RMT union launched what has become an ongoing series of strikes, Keir Starmer ordered Labour frontbenchers and shadow ministerial aides not to join picket lines. This infuriated leftwing Labour MPs and some union leaders, notably Sharon Graham, the general secretary of Unite.

At one point it looked as if there might be a huge row at conference about whether shadow ministers should or should not be allowed to join picket lines. But, in an interview with the Today programme this morning, Graham suggested that a truce of sorts has been agreed – even if the two sides do not entirely see eye to eye.

My issue about this … isn’t necessarily around one person on a picket line because, quite frankly, that isn’t the issue. The issue is the mood music [ordering shadow ministers not to join picket lines] suggests. It suggests a mood music that being on the picket line is somehow a bad thing. It’s a naughty step situation.

The party who is there to stick up for workers should not give the impression – that’s the problem, it gives the impression – that they are saying picket lines are not the place to be. And I think that it was unfortunate. I think it was a mistake. I think, to be honest with you, Labour knows it was a mistake. And I don’t actually think it’s holdable.

When people go on strike it is a last resort at the end of negotiations. And I can quite understand how people are driven to that … I support the right of individuals to go on strike, I support the trade unions doing the job that they are doing in representing their members.

I’m incredibly disappointed that as delegates we’ve been excluded from this key part of the conference’s democratic process.

This is an unprecedented move silencing members’ voices. Our CLP sent us here to Liverpool to promote our motion on public ownership and a Green New Deal, but we’ve been unfairly denied that right.

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Sterling slides back towards record low despite Bank of England and Treasury attempts to reassure markets – business live

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Bank of England issues statement saying it ‘will not hesitate’ to change interest rate but has not implemented an emergency rise

We’ve now reached the point where the Bank of England needs to step in in order to regain the initiative, warns Paul Dales of Capital Economics.

Dales says governor Andrew Bailey has two options.

That could involve something like a 100bps or 150bps hike in interest rates (to 3.25%/3.75%), perhaps as soon as this morning.

By bringing forward a lot of the policy tightening that might needed to have happened anyway, the Bank would demonstrate in no uncertain terms that whatever the government does it will ensure that inflation returns to 2%. This would go a long way to easing the crisis.

“The bank, and indeed the Government, have indicated that they are going to take their next decision in November and publish forecasts and, so on that point, the worry is that they may have to take action a bit sooner than that.”

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Pound falls as weak retail sales raise fears UK economy is in recession

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On Black Wednesday anniversary, sterling hits 37-year low against dollar and 17-month low against euro

Fears that the British economy is already in recession after a slump in retail sales last month triggered heavy selling of the pound on international money markets taking it to a 37-year low against the dollar.

With average UK wages continuing to fall behind rising prices and the Bank of England expected to push up interest rates next week, sterling fell by more than 1% against the US currency to $1.135, its lowest since 1985.

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People race to exchange paper banknotes before deadline

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Queues form at Bank of England to swap old £20s and £50s before they stop being legal tender

Consumers are racing to exchange their old paper banknotes for new plastic versions, just over a fortnight before they cease to be legal tender at the end of September.

The Bank of England has warned people to expect long queues at its headquarters at Threadneedle Street in the City of London as they try to swap paper £20 and £50 notes.

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Bank of England will not take foot off throttle despite drop in inflation

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MPC members will look at other developments in UK and abroad in mission to increase interest rates

The drop in inflation from 10.1% in July to 9.9% last month is not going to trouble the Bank of England’s policymakers when they meet next week to set interest rates. Its monetary policy committee (MPC) is on a mission to increase the cost of borrowing to bring down inflation to 2%. Prices growth that sticks at almost 10% is still too high. One month’s figures are not a trend.

The nine MPC members will also ponder several other developments at home and abroad that can be considered reasons to increase interest rates.

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European stock markets tumble on rising fears of recession

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Euro slumps to 20-year low against US dollar as jump in natural gas prices intensifies economic strain

Rising worries about a European recession hit stock markets on Tuesday as the euro slumped to a two-decade low and the pound fell to its lowest since the start of the pandemic.

Shares tumbled in London and across Europe as a jump in natural gas prices intensified the strain on the European economy.

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Pound falls to lowest level since pandemic crash

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Unemployment rise and prospect of new Scottish independence referendum fuel recession fears

The pound has fallen to its lowest level against the dollar since the onset of the Covid pandemic amid growing concern over the strength of the British economy.

Sterling dropped by more than a cent against the dollar to trade below $1.20 on foreign exchange markets for the first time since March 2020, as City traders reacted to mixed figures from the jobs market and the prospect of a fresh referendum on Scottish independence.

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Global markets at record highs; bitcoin hits $50,000 – business live

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Rolling coverage of the latest economic and financial news

Earlier;

Back to bitcoin... and a senior US central banker has insisted that the cryptocurrency doesn’t present a serious threat to the US dollar’s position.

St. Louis Federal Reserve President James Bullard told CNBC that the dollar’s status as the world’s reserve currency was safe:

“I just think for Fed policy, it’s going to be a dollar economy as far as the eye can see — a dollar global economy really as far as the eye can see — and whether the gold price goes up or down, or the bitcoin price goes up or down, doesn’t really affect that.

“You don’t want to go to a non-uniform currency where you’re walking into Starbucks and maybe you’ll pay with Ethereum, maybe you’ll pay with Ripple, maybe you’ll pay with bitcoin, maybe you’ll pay with a dollar. That isn’t how we do this. We have a uniform currency that came in at the Civil War time.”

Bitcoin poses no threat to the dollar as the world's currency leader, Fed's Bullard says https://t.co/vc0gwcXYd4

It’s also been an exciting day for Italian government bonds.

Rome sold debt at near record-low interest rates today, as investors flocked to the first bond auction since former European Central Bank chief Mario Draghi became prime minister.

Rome is set to raise a total of €14bn ($17bn) from the sale of a 10-year nominal bond and a 30-year inflation-linked note, one of the banks managing the issue said, adding demand had totalled more than €82bn.

The final size of the order book is well below the record €134bn in demand the two bonds had initially attracted, with many investors dropping out after Italy cut the return on the issues.

Draghi sells! #Italy attracted >€110bn of investor bids for a new 10y bond it’s offering in a publicly-syndicated sale which is the first since Mario Draghi took over as PM. (via BBG) pic.twitter.com/j7s1YfM5oT

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