Following months of political uncertainty, UK PM Rishi Sunak and his new cabinet would have been hoping for a period of relative calm. This seems not to be the case. Suella Braverman’s controversial reinstatement as Home Secretary, with her openly admitting that she made huge mistakes when putting national security at risk, she was always likely to be an easy target for opposition parties. However, her failure to get a grip on the immigration crisis currently facing the UK (most notably at Manston centre where 4000 refugees occupy a space intended for just 1600) means she has been the recipient of renewed calls for her to be removed from her position. Whether Sunak’s hand will be forced remains to be seen.
Sterling started the week on a positive note, seeing the Sterling cling to its gains from last week, trading between 1.1450 and 1.1500 against the USD. However, the Federal Reserves’ interest rate decision on Wednesday, in which they opted for a 75 basis point hike, saw the Sterlings’ support short-lived. In the later parts of Wednesday and into Thursday morning, we saw the sterling drop below 1.14 against the greenback. Hopes held that the interest rate decision would see the Pound regain some of the ground lost Wednesday. The optimism was wiped out, not by the interest rate decision itself, but by the Governor of the Bank of England, Andrew Bailey, and his post-decision conference. In this speech, he would go on to say, the UK is now expecting a long hard recession (lasting at least eight quarters) and for unemployment to double in the coming months, effectively destroying GBP gains with the Pound falling 5% against the USD, dropping below 1.1450 against the EUR.
Looking forward, GDP figures in the UK, out next Friday, will be closely watched by traders to see quite how far the UK has fallen into recession already. Many key economists now expect the cable to test parity in the early parts of next year. US congressional elections, in which the Republicans are expected to win a strong majority, and US CPI inflation data are the only other major news to come out next week, there is little scope to see the Pound rally.
