Last week took an unexpected turn when U.S CPI came in slightly lower than expected at 6.3% (Expected at 6.5%), we instantly saw the market breathe a big sigh of relief as stocks and risk assets went up- as I have mentioned before, GBPUSD is a risk currency pair so when risk is on, we see prices move up, and this time was no different, we saw GBPUSD rise from 1.13-1.18 in a matter of 24 hours which is a 4% rise on just this pair alone. The reason the market was relieved about this particular release was that it seems that this will potentially give the Fed some breathing room in regards to rate hikes and may begin to encourage a Fed pivot, and though I do not see any rate CUTS anytime soon, they may look at holding off on more hikes in 2023.
On Friday, the UK released it’s GDP numbers, and though we still had a negative reading (Which will lead to a recession in December)- it was not as bad as previously anticipated which managed to let Sterling hold onto its gains from Thursday, this has presented some great buying opportunities for those looking to buy Euros and Dollars, though the majority of the gains have been on Cable which shows the Pound itself is not very strong, it’s just a risk on environment right now.
The next move for the Pound really is reliant upon November 17th when Chancellor Jeremy Hunt will make his Autumn statement, where he is expected to announce a whirlwind of spending cuts and tax rises. It seems there will be some changes in personal taxation, and talks of a windfall tax for energy companies to try and recoup as much money as possible to help the economy. The last time a Chancellor made a statement, the market tumbled- and though we do not expect the same this time, you can be certain that the public will not be in favour of spending cuts so we not expect a positive reaction from that perspective, and how the markets react, we will just have to wait and see.
As I have stated before, the UK is heading into a recession, so any gains that we do see on the currency should be taken advantage of, generally we not see a bright year ahead on GBP pairs if current forward guidance is anything to go by, so if you have commitments over the next 12 months that you would like to discuss, please don’t hesitate to contact me.