Pound outlook bleak as markets remain unconvinced

After posting a decent recovery bounce overnight Sterling was unable to push on during trading hours as underlying sentiment remained very fragile. This is despite advances in UK equities and gas prices falling to the lowest level for over 3 months. The Pound slumped from 1.1400 against the Dollar to lows near 1.1250. Against the Euro, 1.1520 to 1.1460 before elevenses.

UK interest rate expectations fell to expect a peak of just above 5.0% compared with above 6.0% at the height of the bond-market selling. The bank of England denied that there would be a further delay in enacting the quantitative tightening programme and selling gilts and later stated that the first gilt sales will take place on November 1st, the day after the government’s medium-term statement.

Political tensions soared with Prime Minister Truss under intense pressure and the Treasury warning over a very tough spending round. 

Sterling recovered some ground later in the day, but markets were still unconvinced over the underlying currency outlook with further Euro gains to just above 1.1500.

The headline UK inflation rate increased to 10.1% for September from 9.9% and slightly above 10.0%. Sterling dipped after the data to trade just below 1.1300 against the Dollar given expectations of a further squeeze on government spending while the Euro traded just above the 1.1500 level.