Sterling slides

Sterling fell sharply on Friday after the Chancellor of the Exchequer presented the new UK government’s Growth Plan to Parliament, with the pound shedding 4 cents against the dollar to below $1.09. Sterling remains under pressure, falling further still to c.$1.07 this morning. Against the euro, the pound has declined to trade at over 90p this morning, trading at this level for the first time since early 2021. The single currency has lost some ground to the dollar however, dropping to sub $0.97. Sterling’s woes have captured the markets attention, and overshadowed the news from Italy that the far right coalition is winning a convincing victory following Sunday’s general election

UK borrowing costs also soared with government 10-year yields rising by more than thirty basis points on Friday to trade above 3.80%, the highest level since early 2011, and have breached 4% at the start of this week. Meanwhile, German 10-year yields rose by around 5bps to close out the week hovering around 2% with equivalent US yields at just under 3.70% on Friday, though yields on both sides of the Atlantic are heading higher at the open this week

The Chancellor’s Growth Plan, which contained a raft of tax-lowering measures, is aimed at boosting the UK economy’s growth rate over the medium term, but it has raised concerns on a number of fronts. These include the boost it may give to inflation in the short-term (hence the market now sees the Bank of England raising interest rates to 5.5% by the middle of next year), as well as its impact on the budget deficit which is already set to increase sharply owing to the government’s substantial energy supports for households and businesses

Economic activity in the Euro area contracted again in September judging by the latest PMI data, with the Composite Index remaining below the key 50 level for a third consecutive month

Economic data due this week include consumer confidence and PCE inflation in the US on Tuesday and Friday respectively, with Euro area CPI inflation scheduled for Friday also, while Budget 2023 in Ireland is on Tuesday