GBP
Sterling had another dismal time of things last week, plunging towards $1.08 and new 37-year lows, as the market looked incredibly dimly on Chancellor Kwarteng’s package of unfunded tax cuts, the largest in 50yrs, and the potential unsustainable path upon which this puts UK borrowing, as shown by the whopping 50bps sell-off seen in 5-year gilts as the week drew to a close.
The Bank of England’s continued timid response to inflation is also not helping the pound, with Thursday’s 50bps hike leaving the MPC further ‘behind the curve’ of other G10 central banks, particularly with the Committee now split three ways on the appropriate response to the present economic backdrop.
Looking ahead, the market’s reaction to Friday’s fiscal announcements will remain key in the days ahead, as will a busy slate of BoE speakers, particularly as the prospect of more hawkish rhetoric in an attempt to prop up the pound grows.
EUR
The common currency also had a dismal week last week, as pessimism mounts ahead of a dismal economic winter for the bloc, conflict in Ukraine shows no sign of ending soon, and the broad dollar bull run continues apace.
Having now broken decisively below parity, and trading at 20-year lows, there is little technical support nearby for the EUR; nor is there any fundamental reason to expect a turnaround in the currency’s fortunes any time soon.
This week, Friday’s ‘flash’ inflation data will be the most notable release, with another record high print likely to fuel speculation of further aggressive ECB action next month.
USD
The greenback remains the darling of the G10 FX market, last week trading to new 20-year highs against a basket of peers, with the DXY rising north of 113, amid a sharp rise in front-end Treasury yields, and ongoing shakiness in riskier assets.
A hawkish FOMC decision, including a 75bps hike and ‘higher for longer’ messaging on rates, also contributed to the dollar’s continued strength, with policy and growth divergences continuing to work in favour of the USD.
Looking ahead, a busy slate of Fed-speak highlights this week’s economic docket, including Chair Powell on Wednesday, as markets assess whether a fourth straight 75bps increase is likely at the next decision in November.
World News
New Italian Prime Minister Giorgia Meloni won a clear majority on Sunday, as the Italian election set her up to become the country’s first female prime minister. Meloni gained popularity after leading the opposition to Mario Draghi’s technocratic administration, whilst having little experience of governing.
The European Union plan to contain the energy crunch which will give members the ability to cut electricity consumption less than currently proposed. The commission aim to publish a document detailing future steps the bloc will take to ease the crisis. The document will ask each state to reduce a percentage of consumption during peak hours through to March 2023.
Data Releases
| Date | Region | Release | Previous | Consensus |
| Monday 26th September | EU | ECB President Lagarde Speaks | ||
| Tuesday 27th September | US | Fed Chair Powell Speaks | ||
| Tuesday 27th September | US | CB Consumer Confidence | 103.2 | 104 |
| Thursday 29th September | CA | GDP m/m | 0.10% | -0.10% |
| Friday 30th September | US | Core PCE Price Index m/m | 0.10% | 0.50% |
Indices
| Share Index | Prev. Close | Open |
| FTSE100 | 7018.6 | 7018.6 |
| DAX | 12284.19 | 12284.19 |
| CAC40 | 5783.41 | 5744.49 |