On Thursday, the pound was dealt a chastening blow by another bout of risk aversion in markets. Investors scurried for cover in the safe-haven dollar. This selling pressure – intensified by US policy tightening expectations – floored the UK currency, which fell into the 1.17 range for the first time since March 2020.
Concerns about slowing UK economic growth, persistently high inflation, and political uncertainty also unnerved investors.
The Conservative Party leadership race to succeed Boris Johnson shrunk to six candidates on Wednesday, with another round of voting due Thursday. Uncertainty over who will win and their economic stance casts a shadow over the pound.
British house prices contended with a 40-year high in consumer price inflation, sky-high interest rates and a cooling market. However, the overall breadth of price increases remained well above pre-pandemic levels, according to Thursday’s survey.
The Royal Institution of Chartered Surveyors (RICS) monthly house price balance is a measure of the difference between the percentage of surveyors reporting price rises and those seeing a drop; it fell last month to +65 from the previous month’s downwardly revised figure.
According to RICS Chief Economist Simon Rubinsohn, pricing remains resilient across the housing market. Survey respondents continually highlight a shortage of stock.
Investors snap up dollars amid risk aversion
The risk-off mood in markets helped the dollar shift through the gears on Thursday, away from the uncertainty that creates a roadblock for riskier currencies like the pound.
A higher-than-expected US inflation reading on Wednesday prompted bets on a possible 100 basis point interest rate hike by the Federal Reserve when it meets on July 26-27, unnerving markets and boosting the dollar.
Initial jobless claims jumped by 9,000 to 244,000 in the week ended 9 July, the Labour Department reported on Thursday, indicating some cooling in the jobs market amid tighter monetary policy and financial conditions.
Economists forecast the number of Americans filing new unemployment claims would edge down to 234,000 from last week’s estimate of 235,000.
This is the highest level of new claims since early November 2021. It is also the second straight week the figures increased.
Data published by the Bureau of Labour Statistics on Thursday showed US inflation is heating up across the board, with producer prices surging to a near-record high due to a significant jump in energy costs.
The producer price index (PPI) – a measure of the prices for final demand products – rose 11.3% from a year ago, the highest reading since March, when the PPI hit a record 11.6%.
Looking ahead
US retail sales data for June is due on Friday; markets will monitor the numbers for signs of recession risk. Consumer spending accounts for about two-thirds of the domestic economy, but with inflation at four-decade highs, soaring consumer costs are squeezing households.
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