Sterling under pressure amid new headwinds
Well just a crazy start to the week in the FX market which leaves the Pound a sitting duck once again. We were only expecting volatility to hit this evening with the Fed meeting and then following into 'super Thursday', but trouble arrived at the door much sooner.
We explained that Sterling started to slip Monday morning after a bit of a stock market crash and with economic concerns over in China. Since then, a double dose of risk has hit GBP. You may have heard in the news recently of the Chinese property developer 'Evergrande Group' collapsing. Real estate is key to China's growth (29%), 1.5 million people have deposits down on new homes with Evergrande (the second largest developer in China) who are in $305 billion wort of debt. A collapse could be catastrophic within China that would then have a knock-on effect to the rest of the world.
The other bit of news you would have heard about is the energy price pressures, specifically in gas. The UK is a net importer of gas, meaning we are exposed to price squeezes. Surging gas prices would pose a significant dent to consumer spending, industrial production and kick the rate hike down the road. As these headwinds create economic uncertainty, the Pound takes a hit being a 'beta-currency'.
GBP-USD has lost 2% in a week with GBP-EUR falling 1.3% in the same time-frame. The resistance level of £-€1.16 mid-market will now be tested and as the $ is a safe haven currency, the $-£ could strengthen past 2021 highs. The next 48-hours will be crucial for the Pounds near-term road-map..