Keep Calm and Carry On?
Comment of the Day

September 26 2022

Commentary by Eoin Treacy

Keep Calm and Carry On?

This article from Allegra Stratton at Bloomberg may be of interest. Here is a section:

Traders, analysts and politicians looking for a soothing balm had been surprised on Sunday to hear Kwarteng’s commitment “more is to come.” Sterling dropped further and then, while the UK was sleeping, its currency tumbled in Asian markets — to £1.03 to the dollar, something former Treasury officials I know didn't think they’d ever see.

And so, even though the pound pared its losses slightly, the Bank of England came under huge pressure to do something. Anything.

A likely whopping 100 basis-point hike in November was already priced in. By Monday this climbed to 200 basis-points — four times the size of its last hike — and a call for an extraordinary extra session hastily arranged for this week. By lunchtime, there was a rumour of a BOE statement within hours, possibly including a extra bonus rate hike.

In the end this didn’t materialise and all we got was the emollient tweet featured at the top of this email. Most agree the Bank will raise rates again — hammering household mortgage repayments in a period already billed as the worst winter in living memory (something former minister Jim O’Neill weighed in on today, calling the Budget “naive.”)

Eoin Treacy's view

The Pound is accelerating lower so it is reasonable to question when it will find a sustainable low. The tail on today’s candle suggests a low of at least near-term significance so we may get some steadier action. However, the question of how the downtrend will eventually end is unanswered.

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