The volatility of FX markets particularly GBP/USD in recent days is the talk of a headlines this morning, hitting an all time low against the USD investors will look for stability and opportunity to position themselves to exploit these I presented moves.
OUR TOP TWO EVENTS FOR 26-30 Sept
Friday – UK Q2 GDP (final reading)
The UK economy contracted by 0.1% in the second quarter of 2022, based on the Office for National Statistics’ first estimate of gross domestic product (GDP). That followed a decent start to the year, with the economy growing 0.8% in Q1.
From Q2 onwards, economic performance has been disappointing, as surging energy prices have added to the cost of living and doing business. The 54% rise in energy costs in April contributed to a marked slowdown in economic output. It also constrained consumer budgets as people prioritised spending on energy and other essentials over discretionary items, leading to a 0.2% contraction in personal consumption according to the first reading of UK Q2 GDP.
Another key factor in the Q2 GDP contraction was the 0.4% drop in services output. This decline was driven by the lifting of coronavirus restrictions in health and social work. Notably, the government’s consumption of goods and services – including the test and trace programme, lateral flow tests and vaccinations – declined 2.9%. In a more positive development, business investment increased by a larger-than-expected 3.8%.
In the third quarter, economic performance is likely to have been equally as weak as in Q2. A second successive quarterly contraction would place the UK in a technical recession.
Friday – EU flash CPI (September)
The eurozone’s consumer price index (CPI) increased 9.1% in the year to August, setting a fresh record high after July’s reading of 8.9%. Meanwhile, core CPI – which strips out volatile prices for items such as food and energy – increased 4.3% in the year to August, up from 4% in July.
Inflation is likely to have risen further in September, with headline CPI expected to have increased to 9.5% and core prices thought to have risen to 4.7%.
In Germany, the pressure on businesses to pass higher costs onto consumers appears to be increasing, with the country’s producer price index (PPI) surging 45.8% in the year to August. Some of this producer price growth is filtering down into higher core prices. Eye-watering PPI readings are also increasing the pressure on the European Central Bank to implement further aggressive interest rate rises, posing a particular problem for heavily indebted member states such as Greece, Italy and Portugal.
US PCE inflation (August)
The US Federal Reserve raised interest rates by 0.75 percentage points for the third consecutive time on Wednesday, even though its favoured measure of inflation, the core personal consumption expenditures (PCE) price index, has been falling since peaking at 5.3% in February.
In the year to July, core PCE inflation slipped to 4.6% from 4.8% in June, reaching its lowest level this year. With only two more Fed meetings remaining this year, discussions among policymakers are likely to centre around whether to raise rates by a further 75 basis points in November, or whether signs that US inflation may be easing should prompt a more modest rise of 50 basis points. Estimates suggest that core PCE edged back up to 4.8% in August, which could see policymakers lean towards another 75 basis point hike. To sum up, expect a week of high volatility across asset class and particularly FX as the uncertainty in global macro economic conditions continue.
After the release of last Friday’s not so ‘mini budget by the new UK chancellor we have a relatively quiet week ahead in terms of economic data releases. We’ll see the final readings of the UK’s and the US’ second-quarter gross domestic product, as well as the provisional estimate of the eurozone’s consumer price index for September.