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Rishi Sunak during the Conservative party leadership hustings event in Cardiff - Editorial credit: ComposedPix via Shutterstock
Yesterday’s economic adjustments were largely overshadowed by news of Rishi Sunak’s appointment as the UK’s new prime minister.
Following a night of ups and downs on Sunday, the pound rose against the US dollar yesterday, but quickly fell. Today, it’s been quite choppy so far. The GBP/EUR rate dropped 1% yesterday and has continued to fall this morning.
Data released yesterday revealed the number of low-deposit 95% mortgages on sale has fallen by 52% since Kwasi Kwarteng’s mini-budget was scrapped last month. This fuels fears that could lead some banks and building societies to withdraw low-budget deals that are often the only choice for first-time buyers.
By close of trading yesterday, the FTSE 100 was higher by nearly 0.9% at 7028 points.
The yield on Britain’s 10-year gilt fell more than 30 bps yesterday to below 3.8%, the lowest in over a month.
In the US, Global Manufacturing PMI fell to 49.9 in October, well below market expectations of 51, the lowest reading since May 2020.
In the euro area, PMI also fell sharply to 46.6 from 48.4 in September. This morning data is expected for Germany’s business climate, which is forecast to fall for the fifth month in a row.
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GBP: Economic challenges ahead
The pound is largely unchanged on the dollar, but up on last month’s standings, while government borrowing costs are down for the day.
Following the appointment of Sunak as PM, sterling spiked against the euro, but this was short-lived. This morning pound remains down against the euro and worse than last week’s figures.
Sunak’s appointment came after the two other contenders withdrew their candidacy. In a brief statement yesterday, the new prime minister warned the country faces a “profound” economic challenge.
EUR: euro makes gains on pound
Despite no large data releases in the euro zone yesterday, the euro made gains against the pound, which has continued this morning. It made minor gains against the US dollar which have also continued.
Today we will receive data from the business climate indicator in Germany, which dropped to 84.3 in September. The forecast remains pessimistic.
USD: US dollar on stormy waters again
After a rather choppy week, the US dollar had a stormy day against the pound yesterday following political announcements in the UK, but it has since regained its strength.
This cannot be said for the USD/EUR rates though, which fell 1% following a hike early on in the day. There is no noticeable change this morning.
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