Markets pessimistic over UK economic outlook
The UK jobs release suggested that the labour market is cooling and overall sentiment surrounding the UK economic outlook remained pessimistic which undermined the Pound significantly. While another 25-basis point hike is expected at the Bank of England meeting tomorrow, the path for future tightening remains unclear. Renewed calls by the SNP for a second Scottish independence referendum also undermined UK confidence
News of the ECB calling an emergency meeting to discuss current market conditions has lifted the Euro, especially as Klaas Knot stated that rates in the Eurozone could rise in October and December and aren’t limited to 0.25% hikes. The EU continued to criticise the UK draft legislation to remove parts of the Northern Ireland protocol with comments that the move is damaging to mutual trust and breaks international law. Our analysis is that the EU will wait until the draft becomes law and will then enact legal action to grind it to a halt.
Risk appetite was poor and Sterling briefly dipped below the 1.2000 level against the dollar and for the first time since March 2020 (Covid) with lows around 1.1960. The Euro also posted strong gains to highs near 1.1500 as overall Sterling sentiment crumbled.
Sterling opens this morning just above 1.2000 against the dollar with the Euro just above 1.1500. The market consensus is now for a 0.75% interest rate hike at tonight’s US Fed meeting, with a minimum of a 0.5% rise expected. Traders will be watching for any adjustment in future projections and economic forecasts. There is very little positivity for the Pound today.