The volatility in the currency markets continues amid inflation and recession concerns with the Pound starting the month at a 2-month high against the Euro, then dropping over 3% in the first 9 days of November but has since recovered one-third of the loss.
Against the Dollar, the Pound had a much better first half of November, rising over 6% since the 3rd. More a case of Dollar weakness rather than Pound strength.
This week promises to be as busy a week in the markets as the last 2-months have been. There\’s plenty of UK economic data releases coming: Tuesday – Employment; Wednesday – Inflation and Friday – Retail Sales. Plus the Chancellor\’s Autumn Statement on Thursday.
PM Rishi Sunak Has Plenty On His Plate…
Both PM Rishi Sunak and his Chancellor Jeremy Hunt have plenty to consider including:-
– The UK economy shrank by 0.2% in September, lower than market forecasts of 0.5%.
– UK business confidence has fallen for 5-straight months.
– The Bank of England (BoE) raised UK benchmark interest rates by 0.75% earlier this month. The biggest single rise in 33 years. Its 8th consecutive rate rise to take the base rate to 3%, its highest level since 2009.
– The BoE also indicated a “very challenging” outlook for the UK economy. Economic growth projected to fall throughout 2023 and the first half of 2024.
– Halifax reported the third decline in UK house prices in the last 4-months. The average house price falling 0.9% in October, the biggest monthly fall since the start of the pandemic.
The Currency Markets Do Provide An Immediate International Perspective
Whilst it simply would not be right to make light of the cost of the lockdown crisis that now faces us, the currency markets do provide an immediate international perspective. A perspective that quickly shows the problems facing the UK are international in nature and to a greater or lesser extent, all developed economies are also facing:-
– The UK has the highest GDP economic growth of all the G7 countries in 2022 at 3.6%. More than double that of the USA (1.6%) and Germany (1.5%) according to the IMF. Inflation in the EU hit 10.7% in October. That\’s a Euro-era high with over half of EU countries having a higher rate of inflation than the UK. There are 27 other EU countries in total. Analysts also signaled that the EU\’s manufacturing economy is already in recession with Germany suffering the steepest fall in activity.
The Fed also increased interest rates by 0.75% at their last meeting. That takes US interest rates to a 15-year high with a new target range of 3.75% to 4%.
Time For Some Good News:-
– The UK has signed a major post-Brexit science and research deal with Switzerland. The UK has 7 of the top 10 universities in Europe; Switzerland has 3.
- Supply-chain pressures are easing with freight rates tumbling by up to 50% on certain routes which should help importers and exporters.
- – The UK leads the way in the G7, cutting per capita CO2 emissions from fossil fuels and industry by nearly 50% since 1990.
– By contrast, China has emitted more CO2 emissions in the last 8 years than the UK has since the start of the Industrial Revolution.
Of course, currency market volatility can bring trouble but with careful monitoring can also bring opportunity.
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This week’s quote is from Oscar Wilde
“The optimist sees the donut, the pessimist sees the hole.”