The Pound has today (Monday) fallen to an all-time low against the US Dollar after Chancellor of the Exchequer, Kwasi Kwarteng, said more tax cuts are likely. Investors are worried this could stoke further inflation. GBPUSD fell to 1.0382 earlier although there has been a recovery back above 1.06 on hopes of emergency action by the Bank of England. A falling Pound is not all bad news – UK investors who hold overseas assets (for example in US Dollars) will benefit.
Equities fell last week as investors remained focused on inflation concerns and worries about global recession.
US Federal Reserve raised interest rates by 0.75%. Investors are now expecting further increases of another 0.75% in November and 0.5% in December. Fed Chairman Jerome Powell said, “no one knows whether this process will lead to a recession or, if so, how significant that recession would be.”
US 10-year Treasury yield rose above 3.9% today for the first time since April 2010.
Bank of England raised interest rates by 0.5% to 2.25% last week and said that the UK may already be in a recession. The market thinks there could be a further, and previously unexpected, hike this week to support the Pound.
UK Gilts sold-off at the end of last week and again today as investors tried to assess the extent of likely interest hikes by the Bank of England. UK 10-year yields rose above 4% for the first time since 2010.
Japanese Yen has been falling all year against the US Dollar. On Thursday the Japanese Government began selling dollars and buying JPY in an attempt to prop up its currency for the first time in 24 years. The Bank of Japan, unlike other central banks, has not been raising interest rates.
UK Market Chart 23rd September 2022
US Market Chart 23rd September 2022
US Risk Barometer 23rd September 2022
Europe Risk Barometer 23rd September 2022
Disclaimer: ‘Where the business has expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. The information contained within this communication is believed to be reliable but Realm Investment Management Limited does not warrant its completeness or accuracy.
This communication is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell investments.’