Morning Update – Knockout Blow

Morning all

 

Through the worst of the week; well at least we hope so!

 

USD

Starting with the flavour of the month. Better than expected data last night in the US has not only cemented why the Dollar is such an attractive investment at present, but why interest rates in the US went up by 0.75% last week. High sentiment and expectations for the US’ continued run, boosted the Dollar last night and pushed GBPUSD lower further still. Lowest tradeable rate to date if you put aside the blip we saw on Monday morning at 4am. Sales of new homes in the US surged 28.8% in August to 685,000 and this is all despite interest rates and mortgages going up in the US!

 

As the US raises interest rates the cost of finance rises on a global level, pressuring the world’s economy into a slowdown. The strengthening Dollar also provides additional headwind, making it harder for many countries and companies to repay debt raised in USD. But the strong Dollar is also inflationary; think of the added inflationary pressures Europe and the UK face as their currencies depreciate against the Dollar. The cost of imported goods, commodities and services all rise in local-currency terms, which is particularly harmful in an energy crisis. Both the UK and EU are net importers of energy. In short, the U.S. is exporting its inflation to the detriment of the rest of the world.

 

 

GBP

We’ve been having a multitude of conversations across a huge sector of international businesses affected by GBP’s abysmal performance and the general consensus is that the Bank of England (BoE) has a lot to answer for in not raising interest rates as aggressively as required. In addition the BoE have turned around yesterday and stated that they will not entertain any ‘emergency meetings’ and will readdress the interest rate situation again in November. In short we have another month of this trading range. These difficult market conditions come as the UK desperately tries to convince investors to invest in its public debt to finance government spending. The inflow of capital this creates is crucial in supporting the value of GBP, remove this and GBP has been left with no support. If you have USD or EUR to sell against GBP, enjoy. For the 90% of you who are importers/buyers of EUR/USD then please continue to call in to discuss internal budget rates and coping mechanisms.

 

EUR

Nearly as dire as the UK, this is compounded by the fact that tourism is now dropping off until 2023 and the continued gas crises/troubles with Russia.

 

Here to help as always.

1FX

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