The EU v UK PMI battle resumes Friday, but tomorrow's UK inflation rate is the main event for the week....
|
| The Pound has been 'stable' during the month so far, but key economic releases still lie ahead..
The UK's inflation rate in September is expected to rise to its highest level since January last year and hit what commentators hope is the 'peak' at 4% (double the BoE target and that of other major nations).
Tomorrow's release should create market volatility, especially if 4% isn't the result most expect to see. A softer reading on inflation tomorrow would normally see GBP lose value (that scenario may still happen), however we think the opposite may occur.
For interest rates to come down and/or speed up in falling, inflation needs to show signs it's back under control and dropping. But, cutting interest rates devalues the currency (something that is working well for GBP right now), as investors have less incentive (yield) to hold assets in that currency.
The UK bond yield is extremely high at the moment because the government needs money and investors are not convinced the government have UK debt under control and so they may not get there investment back.
The bond market has been the main market driver in 2025 (apart from initial Trump tariff drama) and so if inflation surprises on the down side, the UK's bond yield may fall, which relieves pressure on GBP.
The Pound has had a poor month versus the USD (risk sentiment), but is up versus 7 of the G10, including 0.5% against the Euro. 1.15 mid-market is the average rate seen in the last 3-months and so no surprise really that this is where the pair currently trades before the huge UK budget risk event next month.
The EU v UK PMI battle resumes Friday and £-€ will fall if the UK loses again. |
|