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Pound subdued as gas prices hit fresh record highs

currency-newsPound subdued as gas prices hit fresh record highs
Sterling struggled for clear direction during yesterday’s session as gas prices hit fresh record highs and investors reacted to UK Prime Minister Boris Johnson’s conference speech.

The pound is slipping so far this morning, with GBP/EUR down to €1.1748 and GBP/USD subdued at $1.3590. GBP/CAD is struggling at CA$1.7092, while GBP/AUD and GBP/NZD weaken at AU$1.8625 and NZ$1.9603, respectively.

Coming up, will worse-than-expected German industrial production data weigh on EUR sentiment this morning?


What’s been happening?

The pound was mixed through Wednesday’s session as the UK fuel shortage continued to ease but natural gas prices hit a fresh record high.

Soaring energy prices and supply chain problems are fuelling concerns of increasing inflationary pressure hitting consumers and businesses, in turn damaging UK economic growth, which limited GBP yesterday.

UK Prime Minister Boris Johnson appeared to add to the pound’s struggles after his speech to the Conservative Party conference, with some economists alarmed by Johnson’s stance on supply chains and staff shortages.

Meanwhile, the US dollar made gains on safe-haven demand amid risk-off trade, and rising US Treasury yields.

Market sentiment soured as the US debt repayment deadline looms, global energy prices rocket, and inflation jitters persist.

USD exchange rates also received support from the September’s better-than-expected ADP employment change data that revealed robust job creation, potentially increasing the chance of the Federal Reserve tightening monetary policy soon.

Broad strength in the US dollar pushed the EUR/USD exchange rate to its lowest levels since July 2020 due to the negative correlation in the pairing, before market mood improved overnight allowing the single currency to recover some losses.

The euro also came under pressure from a worse-than-expected -7.7% contraction in German factory orders in August, and Eurozone retail sales missing forecast of 0.8% with a 0.3% reading in August.

What’s coming up?

Starting today’s session were dire German industrial production figures for August that showed a worse-than-expected -4% contraction, which could weigh on EUR sentiment this morning.

However, the euro could receive support from Russia’s commitment to increase gas supplies to Europe, easing concerns over the mounting energy crisis and cooling gas prices.

Meanwhile, ahead of the highly influential US non farm payrolls report tomorrow, increasing market risk appetite driven by improving Chinese-American relations, and US Congress looking set to delay the debt ceiling deadline may dampen USD safe-haven demand today.

In the absence of notable UK data releases again today, the pound looks sensitive to ongoing gas price rises and the effects on UK businesses.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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