Sterling suffers heavy losses across the board
GBP has lost over 1% in 24-hours against the majority of currencies after a barrage of negative news and it doesn't look like the situation will improve the further the week goes on. Mid-market ranges were at £-€1.17 & £-$1.3630 when markets opened on Monday morning, rates are now down to £-€1.1570 & £-$1.3490. These are heavy losses for anyone wanting to sell GBP and the volatility looks set to continue as the month and quarter comes to a close.
Domestic issues and another stock market sell-off have put severe pressure on the Pound. On the latter, yesterday was the worst trading day for 6-months as investors fret that a lower growth and tighter policy environment lies ahead. There is a suggestion month & quarter-end movements are at play already (traders closing/opening positions), but the reality of the energy crisis and high inflation must be the main driver. Sterling has been following the S&P 500 for well over a year now, so it was no surprise to see £ fall after the index lost 2% yesterday.
A look at two graphs on gas prices and £-€ rates show an exact correlation that when gas prices have spiked, £-€ has fallen. The two record days for gas prices arrived on September 20th & 28th, GBP v EUR dropped 0.5% and 1% on these days. We can therefore suggest that Sterling will not recover until the energy crisis has stabilized. Your guess is as good as mine for when that is expected to happen.
Whilst I can't stand delivering bad news, £ and the UK is heading towards an almighty headwind with three major variables. High inflation, higher interest rates and low growth = a recipe for disaster for consumers and £'s value. Consumers' pockets will be hit by the recent tax announcement, general day-to-day costs are already higher due to the inflation level and set to climb more with energy prices which would then push inflation even higher.
An interest rate hike now would see businesses naturally borrow less, unemployment will rise with lack of jobs, consumers will pay more on mortgages and loans and basically economic growth will grind to a halt (even more than it currently is). The energy crisis almost overnight, has thrown a significant spanner in the works for the BoE. £ will be vulnerable until it has been fully resolved.