Prime Minister Liz Truss is on her way out, just as markets wanted. But the huge economic and fiscal headwinds ahead spell further pain for the pound regardless of who wins the contest to become the UK’s next leader.
Investors distracted by the political circus engulfing the nation may start turning back to the economy’s woeful outlook: inflation at a 40-year high, soaring interest rates, depressed consumer sentiment, and a potential return to austerity.
Throw this week’s premiership race and the dollar’s strength into the mix too, and that implies that the sterling’s bounce from an all-time low last month is on borrowed time. And while the bond market meltdown has also subsided, there are plenty of challenges there too. Even with Truss’ sweeping unfunded tax cuts now scrapped, net issuance of gilts for the next fiscal year remains vast and borrowing costs are sky-high.
Whoever prevails in this week’s Conservative Party leadership contest will need to focus on damage control rather than chasing meaningful economic growth.
The U.S. is to release third-quarter GDP figures which are expected to show a return to growth after the technical recession in the first half of the year. The European Central Bank is widely expected to deliver another jumbo rate hike of 75 basis points on Thursday as inflation in the Eurozone approaches 10%. Political events in the U.K. will remain in the spotlight as the Conservative Party selects a new prime minister. Meanwhile, investors will be watching out for delayed economic data from China after President Xi Jinping consolidated power for a historic third term on Sunday.
This Week’s High-Impact Events
The times below are GMT +3.
Monday 24th October
From 10.15 onwards – Europe – Flash Services & Flash Manufacturing PMI
Potential instruments to Trade: EUR Crosses.
11.30 – UK – Flash Services & Flash Manufacturing PMI
Potential instruments to Trade: GBP Crosses.
16.45 – US – Flash Services & Flash Manufacturing PMI
Potential instruments to Trade: USD Crosses.
18.00 – US– Treasury Sec Yellen Speaks
Potential instruments to Trade: USD Crosses.
Tuesday 25th October
Tentative – Australia – Annual Budget Release
Potential instruments to Trade: AUD Crosses.
11.00 – Europe – German ifo Business Climate
Potential instruments to Trade: EUR Crosses.
17.00 – US – CB Consumer Sentiment & Richmond Manufacturing Index
Potential instruments to Trade: USD Crosses.
20.55 – US – FOMC Member Waller Speaks
Potential instruments to Trade: USD Crosses.
Wednesday 26th October
03.30 – Australia – CPI q/q & Trimmed Mean CPI q/q
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