The pound surrendered most of its gains from the previous few days on Wednesday, as investors lost faith in the competence of the UK Government. The Conservative Party has been embroiled in several crises recently that have weighed on the pound, including scarce petrol supplies and empty supermarket shelves still. This has raised concerns amongst investors, who are keeping an even closer close eye on the hugely volatile UK currency. Consequently, one-month implied volatility in the pound – a gauge of investors’ expectations for currency fluctuations – has jumped to its highest level since March.
The Conservatives have painted a picture of economic resilience at this week’s annual party conference, with Lord Frost declaring “British Renaissance has begun”. However, investors continue to question whether Conservative leader Boris Johnson is capable of managing a post-Covid and Brexit Britain.
The pound didn’t receive any support from the only economic indicator in the UK calendar on Wednesday. Britain’s construction sector recovery stalled in September as rising prices, supply chain disruption and staff shortages threw a spanner in the works, a survey showed on Wednesday. The IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) slipped to an eight-month low of 52.6 last month from 55.2 in August. Economists had expected a reading of 54.0. The data added to signals that economic growth has suffered recently.
The UK currency did receive some fresh impetus on Thursday morning, however, from The Halifax House Price Index – which helped the pound vs dollar rate to edge back above 1.36. According to the mortgage lender, British house prices increased by the most in almost 15 years last month. Prices jumped by 1.7% from August, the largest monthly increase since February 2007.
US private payrolls exceed expectations
The dollar ticked higher in value on Wednesday amid jitters that rising energy prices could trigger inflation and interest rate hikes. Also propping it up this week is investor anticipation surrounding Friday’s influential US jobs report, which could provide clues on the timing of Federal Reserve policy tightening.
Before then, the ADP Employment Change figure for September hit the headlines on Wednesday. US private payrolls increased more than expected last month as the number of Covid-19 infections eased, encouraging hiring at restaurants and other high-contact businesses.
Private payrolls jumped by 568,000 jobs in September, the latest ADP National Employment Report showed on Wednesday. The number for August was revised lower to show 340,000 jobs added, instead of 374,000 as was initially reported. Economists had forecast private payrolls would increase by 428,000 jobs.
Initial Jobless Claims for the week ended 1 October are published in the US today and are forecast to decline to 350,000 from 362,000 the previous week.