British Pound
That Indian Summer predicted for GBP took a knock yesterday, with UK PM Sir Keir reshuffling some of his top team and the markets scoring it, as a blow for Chancellor Reeves since the PM seems to be recruiting a rival economic team to try and regain control of the UK economy and the growth agenda. That reshuffle and the sudden belated realisation that 30 year Gilt Yields are at a 27 year high at 5.69% were enough to knock 1 cent off GBP/USD as the USD strengthened. The absolute level of Gilt yields are a vicious circle: the cost of new borrowing is high and the cost of financing existing debt is high, which in turn worries investors who demand a higher yield to buy gilts etc etc. To break that cycle the UK Government needs to demonstrate a positive economic agenda and that is what currently eludes the UK Chancellor.
EUR/USD 1.1630.
Federal Reserve Independence
While it was broadly acknowledged if not accepted that China and Russia were joined in opposition to the USA, POTUS has now achieved what would have been considered as fanciful only a year ago in driving President Modi PM of India and its 1.4 billion citizens into the willing arms of Presidents Xi and Putin. Yesterday, separately in what is a significant move ECB President Lagarde broke cover and issued a strong opposition statement to POTUS’ war of words against and potential interference in the independence of the Federal Reserve. That statement was not just unsurprising regarding the notion of the loss of independence of Central Banks, but is unusual in that it reflects a growing EU disenchantment with POTUS. The question raised last weekend as to whether we are now approaching the time that markets will punish POTUS for his economic policy actions and his less than successful international outreach may be answered rather sooner than later.
GBP/USD 1.3395.