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With inflation falling, currency markets began to raise their expectations of interest rate cuts.
News that the UK’s headline inflation rate unexpectedly held steady at 3.8% was enough to cause an about-face in interest rate forecasts. Economists and investors changed their tune fast – across the course of a few hours, in facts – predicting September’s figure could mark the moment of “peak inflation” in this cycle.
Of course, those predictions are subject to the swings of notoriously fickle currency markets. The Bank of England’s next decision is by no means a sure thing, particularly given it comes so close to the autumn budget. Andrew Bailey and his team may decide they need more evidence of price stability before they can risk another cut.
The pound weakened sharply after the inflation report but recovered almost all its lost value against the US dollar and the euro across the afternoon session. The yield on 30-year UK government debt also fell to its lowest level since early July, making things just a little more comfortable for the chancellor.
The Argentine peso tumbled to a record low yesterday ahead of Sunday’s mid-term elections. Having previously received a $20 billion lifeline from the United States, fears are growing that it will not receive a second cash injection that could stabilise the economy, currently experiencing major strains.
Financial markets and experts alike now expect the Argentine peso to be devalued next week. That would be a bitter blow to President Javier Milei, the self-styled sledgehammer who has sought to bring down inflation and reorganise a chaotic economy.
After a stormy meeting in Washington last weekend, Volodymyr Zelenskyy indicated that he would support freezing current battle lines in a peace deal with Russia. That is a significant change from his former position, although Zelenskyy said he doubted Russia would consider such a proposal.
Shortly after that statement, President Trump announced sanctions on two of Russia’s largest oil producers. The price of brent crude surged by more than 3% overnight and, combined with Tuesday’s jump, means this is the largest two-day jump since July.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 3918 7255 to get started.
GBP: Bad for sterling, good for Reeves
Wednesday was one of those odd days where good news for the UK economy meant bad news for the pound. Sterling would recover from its early stumble, but there is no mistaking the change in tone within markets. To many, rate cuts are back on the menu, presenting the pound with another downside risk.
GBP/USD: the past year
EUR: EU hit by second heist
Heists are back in style. First in Paris, but now evidently in Greece, where police arrested dozens of people accused of accessing EU agriculture funds by posing as farmers. Police said that they had successfully stolen almost €20 million euros, with the sting part of a larger investigation into misuse of EU farming funds.
GBP/EUR: the past year
USD: Argentina support backfires
Donald Trump’s White House has been a staunch supporter of Argentina’s Javier Milei. Along with the funding injection, Trump recently agreed to import more Argentine beef – a move that angered American farmers, who until recently had been suffering from a funding crisis. The recent crisis is bad for the US dollar’s reputation and things could get worse should Friday’s inflation data provide a surprise.
EUR/USD: the past year
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