Sterling hits 10-month high against dollar as US inflation pressures ease; gold and silver rise – business live

Introduction: Pound hits 10-month high against US dollar

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The pound has climbed to a 10-month high against the US dollar, as signs build that inflationary pressures in America are easing.

Sterling hit $1.2546 this morning, the highest since last June, as the dollar dropped on the foreign exchange markets on hopes that the US Federal Reserve could stop lifting interest rates soon.

The pound has staged quite a recovery since its nadir last September, when it fell to a record low against the dollar after the mini-budget fiasco. It picked up as Jeremy Hunt tore up much of his predecessor, Kwasi Kwarteng’s, plans for unfunded tax cuts last autumn.

Chancellor Hunt has sounded upbeat about the economy’s prospects despite the UK recording no growth in February, during his trip to Washington DC for the IMF’s Spring Meeting.

He told reporters:

“The IMF have undershot on the UK economy for quite a long time.

“It has undershot in every year bar one since 2016. It is one of many forecasters.”

Hunt also said the UK government was willing to accept short-term damage to the economy from public sector strikes, rather than give in to pay demands and risk a longer-term hit from persistently higher inflation.

The pound’s rally shows the City is shrugging off the International Monetary Fund’s prediction that the UK will be the worst-performing advanced economy this year.

Instead, investors are focused on data showing that America’s inflationary surge could be fading.

Yesterday, the US producer price index for final demand unexpectedly fell by 0.5% in March, showing a slowdown in the prices being passed onto consumers. And on Wednesday, US consumer price inflation slowed to a near two-year low of 5%.

Fawad Razaqzada, market analyst at City Index and FOREX.com, says:

The US dollar continued to weaken on Thursday, mostly against currencies where the central bank still remains hawkish, or the economic backdrop is improving.

The dollar has come under renewed pressure after more signs emerged that inflation has peaked. Traders are thus betting that the Fed will stop hiking interest rates, and soon it may even start loosening its policy again.

We will have more US data in the form of retail sales and consumer confidence on Friday.

European stock markets are set for a positive start this morning:

The agenda

7.45am BST: French inflation rate for March
9am BST: IEA’s monthly oil market report
1.30pm BST: US retail sales for March
2.15pm BST: US industrial production for February
3pm BST: University of Michigan’s index of US consumer sentiment for April

Key events

Britons hit the high street last week during the Easter break, and spent more on eating out too, new data from the Office for National Statistics shows.

The ONS reports that debit card spending on “pubs, restaurants and fast food” increased by 17 percentage points from the previous week, meanwhile UK high street footfall was 113% of the level of last week.

We’ve published our latest economic activity and social change data.

In the latest week, there was an increase in overall retail footfall and spending in pubs, restaurants and fast-food outlets, coinciding with the Easter weekend.

➡️ https://t.co/f0IGKXMMEK pic.twitter.com/huJ2zJX6US

— Office for National Statistics (ONS) (@ONS) April 14, 2023

The report also found a pick-up in activity at UK companies, another indication that recession fears are ebbing:

One in five (20%) trading businesses reported that turnover had increased in March 2023 compared with the previous calendar month, the highest proportion since the introduction of this question in March 2022.

Firms also lifted their online job adverts by 1%, but the total was 18% lower than a year ago.

Aldi and Lidl join rush to cut milk prices

Sarah Butler

Aldi and Lidl have cut the price of milk to match Tesco and Sainsbury’s as the annual ‘spring flush’ rise in production leads to oversupply.

The price cuts are the first since 2020 as rises in energy, fertiliser and feed prices have led to a surge in the price of milk since then.

Aldi and Lidl both said they would now charge 90p per pint, in line with their bigger rivals, down from 95p.

We reported yesterday that industry insiders said large wholesalers have cut their prices by an unprecedented 5p a litre as the “spring flush” – when cows naturally tend to produce more milk as they are let out into fields – had led to oversupply.

The UK’s FTSE 100 index has risen a little this morning, to its highest since 10th March.

The Footsie is up 18 points, or 0.23%, at 7861 points. Packaging firm Smurfit Kappa is leading the risers, up 1.5%, after Citigroup raised its price target.

Asia-Pacific focused bank Standard Chartered are up 1.5%.

Shares in AO World, the online electrical retailer, have jumped 11% this morning after it raise its profit guidance.

AO World forecast its annual profit will be around the top end of its estimates, as cost-cutting measures pushed up its margins.

John Roberts, CEO and Founder, told shareholders that AO was “encouraged by the work undertaken to pivot the business during the financial year 2023”.

We anticipate that our progress in improving both operational cost efficiencies and margin in FY23 will continue through the next 12 months and beyond.”

AO World’s shares hit 75.25p, the highest since the end of February. But they’re still a long way below their pandemic highs above £4, when the company benefitted from the surge in home shopping and demand for electrical goods such as games consoles.

Dechra shares surge 35% after takeover approach

Shares in pet drugs firm Dechra Pharmaceuticals have surged 35% this morning, after it revealed it is in takeover talks with Swedish investment firm EQT.

FTSE 250-listed Dechra told the City last night that it had entered into discussions with EQT over a possible all-cash recommended offer, worth 4,070p. That would value Dechra at around £4.6bn.

Shares in Dechra have jumped by over a third this morning, to around 3800p, a one-year high.

The share price of Dechra Pharmaceuticals Photograph: Refinitiv

Dechra, which sells medicines to vets, has benefitted from the jump in pet-ownership during the pandemic.

Victoria Scholar, interactive investor’s head of investment, tells us:

Dechra fared extremely well during the pet boom during the pandemic as a strong stay-at-home stock. However it has struggled since, issuing a profit warning in February, citing unpredictable trading conditions.

Although shares in Dechra are soaring today on the M&A speculation, the stock is not fully pricing in the all-cash off suggesting there is still some uncertainty about whether the deal will actually cross the line. Before today’s surge, shares had fallen sharply over the last year from 3,822p in April 2022 to 2800p by Thursday’s close.”

European Movers:
Dechra Pharma. +43%
Hermes +2.0%
Covestro +1.7%
Julius Baer +1.5%
Alstom -5.8%
National Grid -1.4%

— Newsquawk (@Newsquawk) April 14, 2023

Dechra could now join the list of companies which have fallen to foreign buyers since the pound’s slump in 2016 after the Brexit referendum, which made UK companies cheaper to buy.

Over the last seven years, chipmaker ARM, supermarket chain Morrisons, security firm G4S and aerospace and defence engineering group Meggitt have all been acquired, for example.

Pound on track for fifth weekly gain against the dollar

The pound is on track for its fifth weekly again against the US dollar in a row.

It has gained almost one cent this week, having also risen in the previous four weeks.

That would be its best run against the greenback in over two years (since January and February 2021).

A chart showing weekly moves in the pound this year Photograph: Refinitiv

Victoria Scholar, head of investment at interactive investor, tells us:

“The pound has hit a 10-month high against the US dollar while EUR/USD has rallied to the highest level since April 2022.

Cable (GBP/USD) is up over 3.6% year-to-date and is up over 12% in 6 months since the fiscal fiasco around the mini-budget last September which heavily punished the British currency.

Since the lows, the pound has been steadily regaining ground while the US dollar depreciates as traders price in the growing expectation that we are near the peak of the Fed’s rate hiking cycle. After last year’s bull run for the greenback driven by aggressive monetary tightening in the US, 2023 has seen King Dollar lose its crown with the euro and the pound appreciating significantly against it.

However there is still a long way to go to revisit the levels of dollar weakness seen at the end of 2020 and the beginning of 2021.”

Singapore’s central bank has signalled that growth prospects in the city-state have weakened, as it left interest rates on hold today.

The Monetary Authority of Singapore warned that the country’s gross domestic product is expected to “moderate significantly” this year, and that prospects for growth this year have “dimmed.”

That’s significant, given Singapore was one of the first central banks to start tightening policy to fight inflation in the current cycle, back in 2021.

MAS left interest rates unchanged today, as data showed the Singapore economy shrank by 0.7% in the first quarter of this year.

It also warned that the electronics sector has weakened, saying:

Global economic activity was somewhat more resilient than expected in Q1 2023. This reflected the fall in global energy prices, strong consumption demand in the advanced economies, and the lifting of pandemic restrictions in China.

However, the global electronics industry, which has significant production and trade linkages across the region, is in a sharp downturn.

Figures yesterday showing a rise in US jobless claims last week has also weakened the dollar.

Initial unemployment claims rose by 11,000 to 239,000 in the week to April 8, the first rise in three weeks, suggesting the US economy is losing momentum.

Alexander Zumpfe, a precious metals dealer at Heraeus, said:

“These economic data have reinforced the market’s assessment that the cycle of interest rate hikes is nearing its end, which makes gold attractive to investors as it does not pay interest itself.”

Gold and silver prices are rising

Precious metals prices are also rising, on the back of the weaker US dollar.

Gold is inching towards its record high, while the silver price has hit a one-year high.

Gold is on track for its second weekly gain in a row, with the weaker US dollar nudging up its price.

Matt Simpson, a senior market analyst at City Index, says:

“The appetite to sell the U.S. dollar in the wake of soft inflation data, lower yields and calls for a lower terminal Fed rate have been a huge driver for gold.”

Deutsche Bank analyst Jim Reid explains that the possibility of America’s central bank ending its interest rate increases soon are pushing up both metals. He told clients this morning:

Elsewhere yesterday, another asset class that benefited from the prospect of a pause in the Fed’s rate hikes were precious metals.

For instance, gold prices (+1.26%) climbed to their highest level in over a year, closing at $2,040/oz, which leaves it just short of its all-time high in nominal terms, when it hit an intraday level of $2,075/oz back in August 2020.

Overnight it’s risen a further +0.13% to $2,043/oz.

In the meantime, silver (+1.28%) was also at its highest level in nearly a year, hitting $25.82/oz by the close, and overnight it’s risen a further +0.63% to $25.99/oz, which would leave it at a one-year closing high.

The euro is also trading at a one-year high against the dollar.

The single currency strengthened after US producer prices unexpectedly fell in March, boosting expectations that the Federal Reserve is near the end of its rate hiking cycle.