GBP/USD made a new all-time low at 1.0350, and parity with the Dollar looks possible.
The primary catalyst for Sterling’s fall was the not so “mini-budget” revealed on Friday, shocking many at home and aboard. Massive tax cuts and a new energy price cap left investors cautious about the UK’s outlook, with the Financial Times reporting that the cost of the combined tax cuts will be almost £45 billion. The widening divide between the UK Gov and the Bank of England is worrying. Whilst the Gov is determined to spur growth, the BOE is trying to cool the economy down to defeat inflation. The UK looks set for further volatility with the opposing positions in play.
EUR
Euro is also continuing to decline in the face of a dominant Dollar. It fell another 3.5% last week and remains well below parity, touching 0.95 this morning. With the ongoing war in Ukraine, Europe remains in a difficult position, another gas pipeline was permanently switched off, and now Giorgia Meloni, the right-wing leader of the Brothers of Italy, has been voted in as PM in Italy. Data out this week will include CPI, which will direct the European Central Banks’ next move. Many expect another 0.75pt hike is already in play, but it won’t do much to move the market.
USD
In the US, Chairman Powell repeated his priority of defeating inflation. His hawkish commitment gave investors the green light to buy up dollars and sell pretty much everything else, which is one of the reasons for both GBP and EUR decline. US Consumer Confidence is out on Tuesday and will be used to judge inflation’s impact and guide the FED’s plan, but interest rates are expected to reach 4.4% by the end of the year and 4.6% in 2023.
WHAT TO WATCH THIS WEEK:
Mon Sep 26
14:00 EUR ECB President Lagarde speaks
Tue Sep 27
14:35 GBP MPC Pill speaks
15:00 USD Consumer Confidence
Wed Sep 28
08:15 EUR ECB President Lagarde speaks
09:15 GBP MPC Cunliffe speaks
Thu Sep 29
00:00 EUR German Prelim CPI
12:30 GBP MPC Ramsden speaks
13:30 USD Final GDP
Fri Sep 30
07:00 GBP Current Account/Final GDP QoQ
13:30 USD Core PCE Price Index