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Market Update

The pound managed to make up some ground against the dollar this morning, recovering from the 37-year low it hit earlier in the week.

Despite the slight recovery since then, experts are still pointing to the fact that the pound may fall further as Liz Truss seeks to increase government borrowing to fund a new energy support package. This is believed to cost around £100bn.

It comes as Liz Truss announced a limit on UK energy bills, with a cap at £2,500 a year starting from 1 October, amid soaring prices.

The dollar was on track for its first weekly fall in four, as a hawkish rate hike from the European Central Bank lifted the euro and investors looked to U.S. inflation data early next week.

Quick recap from yesterday, ECB did its biggest rate hike recorded with 75 basis points. With members saying they will have to continue to rate hike to slow down inflation levels.

The latest forecast of inflation levels to reach 2% is now set to be by 2024. The USD has dropped off this morning, after the hawkish stance from both ECB and other countries to tackle its inflation levels. GBP/USD and EUR/USD gained 1% this morning. 

Last night EU held an emergency energy meeting on how to tackle the energy crisis ahead. Discussions between price cap on Russian gas, energy sharing and energy levies. The EU members that participated could not agree on which path to follow.

With eastern states focusing on a price cap for Russia to slow income for a continuing conflict with Ukraine. With gas and energy supplies down by 90% from Russia to the EU over 2022, it’s a likelihood that Russia would suspend all supplies if there is a price cap introduced. 

Yesterday we also heard Fed Jerome Powell, saying that the US will continue with its rate hikes and his comments came across as very hawkish. Additional to Powell’s comments the US labour market showed ‘healthy’ figures last week that also contribute to that the Fed can continue an aggressive monetary policy. Markets are currently pricing in a 75-basis point rate hike by 85%. More Fed members are speaking later today, ahead of their decision next week. 

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