Insights

1 Minute Market Rundown – 26th September 2022

Sterling in Freefall
Conservative Budget Risks Inflation Spiral
Russian Action Raises Global Tensions

The pound fell on Friday in spectacular fashion before imploding overnight in Asian trading. Lows around 1.0330 mean close to a 10 cent fall since the UK government’s “mini” budget on Friday morning. In 30 years of trading it is hard for me to comprehend the proud pound trading like an alt coin being tweeted about by a car maker!

The facts are that the huge gamble by the conservative leaders is being ridiculed by analysts, traders and central bankers around the world. Cutting taxes and loading up on debt during spiralling inflation and rising interest rates is just as imprudent as it is irresponsible. The ethos is fine, give people more of their money to stimulate the economy, but giving the highest earners more money who aren’t struggling just risks either spiralling the inflation rate or causing 10 percent levels to embed in the economy.

The pound has nowhere to go and no sign of a saviour. The Bank of England is being backed into a corner and demand for inter meeting hikes with a yield curve now pricing in 5.5% rates next year. The old lady has a long memory, and raising rates to prop up the pound has been tried before (15%) and it didn’t work. I suspect they will be slow to react and time is something the pound does not have on its side. We will sell anywhere near 1.0850/1.0900 and whilst I can scarcely believe I am writing this – a test of parity beckons.

Elsewhere the UK woes coupled with a significant deterioration in rhetoric around Russian nuclear threats have kept risk markets, assets and currencies on the back foot. As we enter quarter end there is a chance of some equity rebalancing which could lend support but that is far from a buy recommendation.

The embers of a crypto rally on Friday never stood a chance to ignite considering other events. That said, the majors are holding up well and continue to lead me to the conclusion that we are in long term value territory and dips are to be bought. Long ETH/GBP looks considerably good value when you take a step back…

As always, good luck out there!

Richard Usher – Head of OTC Trading

Richard-Usher-1

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