UK could avoid recession due to Truss’ fiscal policy, ECB to raise rates above 0% for first time in over 10 years, Euro-zone’s gas bill could drag 2.2% on GDP annually.
September 8, 2022
GBP/USD 1.1488 GBP/EUR 1.1508 EUR/USD 0.9983 USD/CAD 1.3130 EUR/CHF 0.9747 EUR/SEK 10.7067 EUR/NOK 10.0126 EUR/DKK 7.4365 USD/ILS 3.4236 AUD/USD 0.6737 NZD/USD 0.6046 USD/SGD 1.4055 USD/JPY 143.69 USD/CNH 6.9691 USD/INR 79.7463 EUR/ILS 3.4178 GBP/ILS 3.9331 USD/ZAR 17.3242
Liz Truss’ first day as PM saw sterling depreciate against the dollar by over 1%, reaching lows of 1.1406, not seen since 1985. The drivers are global dollar strength; however, markets also highlight the difficult challenges faced by the UK economy.
Truss is expected to announce her flagship energy policy today, to tackle soaring energy bills. Households have been somewhat protected by price caps; however, businesses have been exposed to the spot prices. The effort could involve over $200 billion of funding, which will expand UK debt by roughly 10% causing concern over how sustainable borrowing at this pace could affect the UK’s long-term growth. The package could be large enough to dodge a recession and might mean peak inflation has already passed said Bloomberg Chief Economist Dan Hanson.EUR
The European Central Bank takes centre stage today as it meets to make its rate decision. Markets are currently considering bets of a 50-bps and 75-bps hike. Investor bets are leaned towards 75-bps, although certainty over a 75-bps hike has wavered in recent days as weaker economic data has stoked fears among ECB doves. This would be the first time that European interest rates have risen above 0% since 2012.
Russia’s decision to halt flows of natural gas could raise the euro-zone gas bill by an extra $50-billion euros. The total costs could drag on GDP by about 2.2% annually.USD
The story of 2022 has been robust dollar strength forcing both EURUSD and GBPUSD to continuous lows. The last time GBPUSD reached this level, the world’s nations signed the Plaza accord, an agreement to weaken the US currency, showing the extent to which, the foreign exchange landscape has changed.
Expectations for the federal reserve’s hikes are growing. Some now see a 75-bps in September, followed by 50-bps in November. The increasingly hawkish tone shows that Fed officials may not have seen inflation tamed in line with their expectations.ASIA/PACIFIC
The PBOC is failing to prop up the Yan with its consecutive stronger-than-expected daily fixings, a sign that sentiment remains tilted to the downside regarding the Chinese currency.
President Joe Biden is holding back on his decision to scrap Trump-era tariffs on Chinese imports. Australia’s trade surplus has halved as commodities prices retreat globally.ILS
Israel plans to open trade mission in Morocco during 2023, expecting to triple trade volumes between the two nations.
USDILS trades slightly below yesterday’s heights of 3.447, falling roughly -0.7% to where it trades currently.Data & Events
Truss’ unveils energy plan
US Initial Jobless Claims
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