The pound just can’t catch a break as the UK’s bleak economic outlook eclipses any benefit the currency stands to receive from rapidly rising interest rates
Another record inflation readout this week spurred money-market traders to bet the Bank of England will more than double its key rate to 3.75% by March from 1.75% currently.
Rather than buy sterling though, investors sold it, while options traders stayed resolutely bearish on the currency versus the US dollar. They also piled into hedges against higher consumer prices, betting the worst is still to come.
In theory, raising rates should act as a tailwind for currencies and a headwind for bonds. But in the UK the poor growth outlook, price pressures and uncertainty over the path of policy under a new leader are denting demand for the pound and bonds at the same time. Sterling has dropped against both the euro and the dollar so far this month, even as the rise in UK bond yields outstrips other markets.
“If this trend persists then it could be truly alarming,” said Mike Riddell, portfolio manager at Allianz Global Investors. Global investors probably “don’t like the UK’s double-digit inflation combined with the inflammatory prospect of the likely next prime minister throwing fiscal stimulus on top,” he said.
It’s a dynamic that Adam Cole, currency strategist at RBC Capital Markets, has also spotted. This kind of breakdown in the correlation between currency and yield shifts is typically associated with emerging-market currencies, suggesting investors are questioning the credibility of UK policy, he said.
Cable was trading around $1.18 on Friday, on track for its worst weekly performance since September 2020. The fear-greed indicator, a gauge of momentum that compares buying to selling strength, implies sellers are now controlling prices once again. The UK currency has also dropped to its lowest level against the euro in almost a month.
Markets finally realising that its gg for the UK and the west in general. Inflation and sovereign debt crisis incoming. Get ready.
Considering how over- leveraged everyone is – because “house prices only go up”. This is going to be brutal and worse than 1980s. People can barely afford to pay their bills and mortgage with minimal interest rates.
If only they had a real Labour party to take advantage of the situation.
It is sad to see how the Sterling has fallen. As it tethers to the Dollar, energy prices at 6000 or rising foodbills will be the least of your concern. They should have kept the rates down because the entire issue is not about rates.
Anyone heard from the government? A postcard maybe?
The Great Depression of the 2020s. We’ll be able to tell our grandkids about how hard it was, if we even survive that long.
We are doomed. Reversing Brexit is the only hope left (after Voting the Torids out)
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From Bloomberg:
The pound just can’t catch a break as the UK’s bleak economic outlook eclipses any benefit the currency stands to receive from rapidly rising interest rates
Another record inflation readout this week spurred money-market traders to bet the Bank of England will more than double its key rate to 3.75% by March from 1.75% currently.
Rather than buy sterling though, investors sold it, while options traders stayed resolutely bearish on the currency versus the US dollar. They also piled into hedges against higher consumer prices, betting the worst is still to come.
In theory, raising rates should act as a tailwind for currencies and a headwind for bonds. But in the UK the poor growth outlook, price pressures and uncertainty over the path of policy under a new leader are denting demand for the pound and bonds at the same time. Sterling has dropped against both the euro and the dollar so far this month, even as the rise in UK bond yields outstrips other markets.
“If this trend persists then it could be truly alarming,” said Mike Riddell, portfolio manager at Allianz Global Investors. Global investors probably “don’t like the UK’s double-digit inflation combined with the inflammatory prospect of the likely next prime minister throwing fiscal stimulus on top,” he said.
It’s a dynamic that Adam Cole, currency strategist at RBC Capital Markets, has also spotted. This kind of breakdown in the correlation between currency and yield shifts is typically associated with emerging-market currencies, suggesting investors are questioning the credibility of UK policy, he said.
Cable was trading around $1.18 on Friday, on track for its worst weekly performance since September 2020. The fear-greed indicator, a gauge of momentum that compares buying to selling strength, implies sellers are now controlling prices once again. The UK currency has also dropped to its lowest level against the euro in almost a month.
Markets finally realising that its gg for the UK and the west in general. Inflation and sovereign debt crisis incoming. Get ready.
Considering how over- leveraged everyone is – because “house prices only go up”. This is going to be brutal and worse than 1980s. People can barely afford to pay their bills and mortgage with minimal interest rates.
If only they had a real Labour party to take advantage of the situation.
It is sad to see how the Sterling has fallen. As it tethers to the Dollar, energy prices at 6000 or rising foodbills will be the least of your concern. They should have kept the rates down because the entire issue is not about rates.
Anyone heard from the government? A postcard maybe?
The Great Depression of the 2020s. We’ll be able to tell our grandkids about how hard it was, if we even survive that long.
We are doomed. Reversing Brexit is the only hope left (after Voting the Torids out)
Good job you buy oil in dollars 💀
This country is going down the drain.
That doesn’t sound good.