How Rising Pounds and Stabilizing Dollars Shape Global Competitiveness.

GBP: The British pound has surged to its highest level in over two years, now trading at $1.34, a sharp recovery from its low of $1.03 after Liz Truss’ mini-budget. While this might seem like good news, experts warn it could harm the UK’s international competitiveness. According to Ross Yarrow, managing director of equities at Baird, the strength of the pound poses challenges for the UK, the world’s fourth-largest exporter. The surge is driven by expectations that the Bank of England will maintain higher interest rates than the US Federal Reserve. While the Fed is expected to cut rates aggressively, the Bank of England has signaled a more cautious approach, allowing markets to predict fewer cuts, which has pushed up the pound as investors seek better returns in the UK.

USD: The US dollar rallied strongly on Thursday after hitting its lowest point against the euro in over a year and a 2 1/2-year low versus the pound. Traders are closely watching speeches from key Federal Reserve officials for clues on the pace of future rate cuts. While Fed leaders are not aligned on how quickly to reduce rates, markets still expect another 50-basis point cut in November. Employment data, now the Fed’s focus over inflation, will be a critical indicator for future rate decisions, especially as traders expect more moderate cuts going forward.

EUR: The euro is gaining ground despite no major news driving its rise. Market speculation suggests the European Central Bank (ECB) may cut rates as early as October, with potential reductions through 2025. However, the Fed’s anticipated rate cuts could still outpace those of the ECB, giving the euro a slight advantage. Additionally, the euro is gaining against the Swiss franc as rumors circulate that the Swiss National Bank might also cut rates soon. In a risk-on market environment, currencies like the Kiwi, Aussie, and Loonie are leading gains, while the yen, dollar, and franc lag behind. The euro and sterling sit in the middle of the pack, reflecting a more balanced market sentiment.