Sterling exchange rates have been performing relatively well over the last week since Rishi Sunak was made Prime Minister- we have seen GBPEUR hit 1.1650 and GBPUSD hit 1.1613.
The markets seem to currently have confidence in PM Rishi Sunak (For now), however, there are still troubles that are looming ahead for the UK which could have an immediate effect on the markets. The first of which is the Fed interest rate decision this Wednesday- we are expecting a hike of around 75 bps which will bring the Fed rate to 4%- however, the key info to take away this week is the Fed’s long-term plans- it seems markets are now looking to price in a “Fed Pivot” which would entail no longer raising rates for the time being to see how it affects inflation- typically it takes one quarter to see the effect of one interest rate hike, so the hope is we do begin to see inflation come down in the U,S, it seems raising rates has helped with slowing demand especially in the housing market so far. Any hint of a pivot from the Fed would weaken off the U.S Dollar.
On Thursday, the BoE also have their interest rate decision- however, this will not be as easy as the Government has pushed back their budget speech into November instead of the initially announced 31st October- this makes it difficult for the BoE to understand what fiscal policy will be in place to go alongside their monetary policy. Markets are pricing in a hike of anywhere between 75-100bps this Thursday which would bring the interest rate in the UK to 3-3.25%- this is not good news for those looking for mortgages as it will cause more uncertainty in the lending market, however, this is all being done to slow demand so it is having it’s desired effect.