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  • richard evans

IMF criticism adds to GBP woes

Good morning

GBP struggles to make any headway, GBPUSD down at 1.0650 although looking at other currencies it is probably fair to put this partly down to a bout of USD strength after Fed officials continue to give the ‘still have more to do’ message, although Daly did add that she was concerned about tipping the economy into a downturn. Any talk of some sort of coordinated plan to weaken ther USD has pretty much been dismissed. EURUSD is at 0.9550, AUDUSD 0.6370, USDJPY up at 144.75 and gold down to $1620.

I am concerned about the comments from BoE where they have intimated they could use rate rises to prop of GBP. To me this is a dangerous game, we’ve been there before and know how it rarely pans out well. As we have seen in Japan, intervention may have a short-term impact but it is difficult making it last. No wonder volatility levels remain high. With such a low GBP likely to drive inflation higher, the risk of higher rates is certainly there. The market is pricing rates up around 4% by late this year. Remember though my comment the other day, GBP has now depreciated after every one of the last five rate rises.

IMF have expressed concern over the UKs recent tax cuts and other fiscal plans which seem to have driven this last leg of GBP weakness, their comments have not gone down well with UK officials. I’m not surprised, given such stinging comments are highly unusual and will do nothing to ease the pressure on GBP.

While I do think GBP will recover over time, the risks remain clearly to the downside for me. It is a far easier sell than a buy and I have seen several trade ideas from banks looking for lower levels. The combination of a struggling GBP and a very strong USD is something that is difficult to fight against.

USDJPY is still in high 144’s, there seems little desire to push it above 145.00 given the Japanese authorities could well be preparing another round of intervention. Elsewhere in Asia, USDCNY has traded to a multi-year high, reaching almost 7.2300, up from 6.32 or so earlier this year. The official fix was 7.1107

A not particularly unexpected result from the Russian referendums, with all four occupied area voting to join Russia. What a shock that is! Now we see what the next steps will be. Has Russia taken what it originally set out to get? Will they stop now? Or will the invasion continue? Meanwhile the Nord Stream pipeline is suffering from leaks and there are plenty of suggestions this has been caused by sabotage, although the suspected culprits have not yet been named. Watch this space. The obvious concern would be Russia, if so this would be regarded as an attack on European energy infrastructure according to EUs von der Leyen. Not good.

Finally I see Royal Mail workers are set to hold 19 days of strike action between now and the end of the year, including over Black Friday and cyber Monday. I’m not sure those specific days are quite so significant now and I reckon people will be OK to wait a few more days for their goods. But this is another industry going on strike, and I’m sure it won’t be the last.

- 08.15 ECBs Lagarde speaks

- 09.15 BoEs Cunliffe speaks

- 14.00 SNB quarterly bulletin

- 15.00 US pending home sales

- 15.15 Feds Powell speaks

- 16.00 Feds Bowman speaks

- 16.00 ECBs Elderson speaks

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