Stagflation looks like it has a firm grip on the UK right now. What it means here..
| GBP
| Stagflation often runs much longer than a recession as there is no easy way out of it. It is an environment where an economy stagnates and has high inflation at the same time. A recession is only growth based.
The UK has stagnated for over a year now (probably a lot longer if we are being very honest) and whilst inflation is nowhere near what we have endured in recent years, the last year it has been creeping up away from the 2% target (currently now 3.6%).
This is bad news for consumers, businesses, investors, the currency and the Bank of England (BoE) who can easily make matters worse with a bad decision.
Last week, GBP v EUR hit the lowest point since November 2023 (we remain here still). The last time this happened was only 3-months ago and the pair rallied 4% in 1-month.
However, things are very different this time round..
One major data divergence is; April's drop was sudden over a 2-week period (overbought territory), this time it has been a 2-month downturn. Lots of reasons as to why we are here, but the catalyst (as was the case in April) is the Governments handling of debt and investors' confidence in them waning.
Now the Autumn Budget isn't until Q4, so there is a 'good' chance of a recovery in Q3. But when, if and how much by, I have no idea unfortunately. A painful 'stick or twist' point for those with exchanges in the pipeline.
The hope this week for some recovery would be to see the ECB cut interest rates again (unlikely) and for the PMI's to beat expectations (50-50).
EUR Has the ECB finally finished their aggressive interest cutting cycle?
They were the last to move on interest rates coming out of the pandemic, but the first to cut them once inflation moved lower. They are clearly on their own path with interest rates with the UK 'following' the US' lead on 'higher for longer'.
The Euro is very strong across the board this year and if no-more rate cuts arrive, surely it will only strengthen the single currency further?
USD It has been a better month for the Dollar gaining against both the Pound & Euro. We expect to see the trend continue, but remain strong in our view that long term the USD will get weaker against both majors. |
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