Banking On It

Following the last 30 days of turmoil following the min-budget with the Bank of England (BOE) stepping in restarting quantitative easing, the US FED having a very different policy in place plus the war in Europe escalating further, Stephen Eakins, Director at Lumon, shares his expert insight with Abode2

Sterling had a volatile period following the release of the ‘mini-budget’, falling to a multi decade low against the US dollar before recovering. However, this left the currency weak, as the Bank of England suspended it’s plans to offload GILTS purchases, a UK Government liability in sterling, issued by HM Treasury and listed on the London Stock Exchange, from its balance sheets.

Instead, the Bank of England intervened in the market to purchase longer-date GILTS to rescue the pension sector. It is fair to say that sterling is now vulnerable as the market has lower confidence to play a role in the directional bias of the currency.

With the House of Commons returning and the recent change of UK Chancellor, there have been further clues to fiscal policies and potential fallout are emerging. The market will closely follow economic date and political changes as an indication of what UK PLC could well look like in the coming months. Currently, the market is pricing a more significant 90% probability of a 100-basis point hike at the next Bank of England decision.

Across the pond, the Federal Open Market Committee increased interest rates to a 15-year high, now at 3-3.25%, with further rises predicted. Many are now watching the data from the US to see whether the plan to focus on getting inflation down will be fruitful or if a slowdown that could affect the path of rates and subsequently the path of the US dollar, is on the horizon.

Stephen explains: “The recent UK quantitative easing support program from the Bank of England for pension firms ended on the 14th October, creating more pounds in circulation and ultimately making the Pound worth less. All while the US continues to raise interest rates ‘sucking up’ the 20 trillion central banks injected into the market in the last 10 years. As the US lifts interest rates, in a large contrast to most central banks which are still injecting more liquidity, this sucks the liquidity into the US domestic market pushing up the US dollar value significantly, impacting international and emerging markets and potentially starting a currency crisis.”

However, he adds: “As a firm of nearly 200, with over 20 years of experience who is private equity backed, I’d be extremely surprised if we could not ultimately help clients navigate through the current period of uncertainty.”

https://www.lumonpay.com/

All information was correct at the time of publishing