Pound Sterling back in the green (for now)

Hi everyone,

 

There has been a lot of news affecting the market over the weekend (and today), which has caused GBP to continue its 'topsy-turvy' behaviour. Let's start with the most obvious headline then and it looks like Rishi Sunak is about to be announced as the new Prime Minister for the UK. Whether Sunak or the second favourite, Penny Mordaunt win, it seems the market isn't too bothered at this stage who the successor actually is.

 

Yes, question marks remain over what happens with Chancellor Hunt and whether the new PM will point to more fiscal tightening at the end of the month. But, the market seems calm after Truss' resignation. The Libertarianism stance and American-style taxes were obviously and simply not welcome. So we expect to see no volatility in the result and nothing further from this headwind until October 31st.

 

On Friday evening we saw somewhat of an 'out-of-the-blue' variable in markets. Japan's Government & the BoJ intervened in the currency market at an eye-watering cost of $36billion to aid in the retreating Japanese Yen. Japan has some of the world's largest currency reserves and so the news isn't spectacular, however there is huge concern that it hasn't worked. There was an initial spike in JPY/USD, which saw GBP spike also as the $ weakened across the board. Onto today though and the pair is now trading at its lowest level since 1990..

 

£-$ rates rallied further into the weekend after Federal Reserve Bank of San Francisco President Mary Daly (that was a mouthful), suggested the Fed should now consider reducing the size of rate hikes. The S&P 500 jumped on the news gaining 6% in a week, which in-turn propelled the Pounds value as a 'high-beta' currency. This sentiment from Mrs Daly has since been echoed by many and may even be in the thought process of the ECB too after its latest PMI data..

 

The German economy has sunk deeper into contraction territory to start Q4 with 29-month lows across composite, manufacturing and services. The French economy has also stagnated to start Q4, with the only shining light being that the weather hasn't been too bad for the Euro-Zone as yet. The UK's PMI news was also terrible with its own 21-month low in the all-important services number. The key difference here is the economy doesn't face as high interest rates than the Euro-Zone, which to most economists looks like it will completely cripple the economy this winter. 

 

Finally, the week ahead looks impossible to predict what will happen on the market. Both the EU & US post key economic data with the standout being from the ECB this Thursday. Consensus sees another 75bp hike which near-term will aid the EURO, but both medium and long term looks to point at trouble. 

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