Sterling hits record low

Concerns building

Economic fears are sweeping through the markets once again this morning, with the UK taking a particular drubbing as the pound hit a record low against the dollar.

Friday’s mini-budget has gone down like a lead balloon, much like the pound again this morning, and serious questions are already being asked about the economic competency of the new government.

So much so that markets are factoring in a strong chance of a substantial emergency rate hike from the BoE in order to shore up the currency and confidence in the markets, perhaps even today. Desperate times call for desperate measures but when the wound is so self-inflicted and terms such as “behaving like an emerging market currency” are being thrown around, I’m not sure we should be hoping the central bank will fix everything.

A policy u-turn could be more effective in stabilising the currency, even reversing a large portion of the losses, but the political damage is done and I’m not convinced the government will do it, regardless. The backlash may be far more fierce than they were expecting but I think they may choose to stand by their gamble.

Italy outperforms after far-right election victory

The one stock index in the green in Europe today is the FTSE MIB. This comes after the far right secured a majority victory in the election on Sunday which could deliver some political stability in a country that so often lacks it. Time will tell whether the parties can actually deliver on the economy in a way that many before them have failed to do but we’re certainly seeing some short-term relief in the markets.

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Former Craig

Former Craig

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.