Decline in equities confidence limits sterling support
With no significant UK news yesterday the main domestic focus was tax policies of the Conservative Party leadership candidates where Truss’s polling lead increased expectations of stronger tax cuts. The prospect of an even sharper increase in retail energy prices in October remained a more significant focus. Risk appetite largely dictated Sterling trading and a decline in confidence in equities limited Sterling support.
US bond yields also moved higher after the New York open, further limiting Sterling support, enabling a dip to lows near 1.2180 against the dollar before a tentative recovery. The Euro briefly posted gains before losing ground again and retreating to lows around 1.1990.
The Euro was unable to make any headway in early Europe on Tuesday and gradually lost ground into the US open with unease over the Eurozone outlook still a negative factor. Overall risk appetite was weaker and the Euro dipped to lows at 1.0180 as a recovery in US yields triggered renewed dollar buying.
San Francisco Fed President Daly stated that Fed work on inflation has a long way to go, adding that incoming data will affect the pace of rate hikes. Chicago Fed President Evans stated his hopes that the Fed can increase rates by 0.5% in September and then continue with rate hikes until the beginning of the second quarter of 2023, reaching 3.75-4.00% by the end of 2023.
Caution prevailed at market open and the Pound trades near 1.2170 against the dollar as potential short covering ahead of the Thursday Bank of England policy meeting faded.