UK Market Turmoil Points Towards Further Volatility in Global Currencies

Wednesday 28 September 2022

Investment Talks

UK Market Turmoil Points Towards Further Volatility in Global Currencies

September 2022 | Investors’ focus is shifting from the poor growth/inflation mix in the UK to the extremely negative external balance picture. On September 23, the government announced an additional 0.5% of GDP in unfunded tax cuts. The reaction of UK assets recalled actions we used to see only in emerging markets. The market is giving a strong signal that it is no longer willing to provide capital to fund the UK’s external deficit position. The correlation between interest rates and the currency signals that the market is questioning the credibility of UK policymakers’ actions.

01 | We still see a mild recession for the UK, and we think the economy is already in recession.

02 | Market reaction after the announcement of the new, unfunded tax cuts has been brutal, signalling that the UK’s policy stance is increasingly under scrutiny.

03 | While the fiscal package will stimulate demand in a supply-constrained economy, it will likely put a floor on growth but lead to higher inflation for longer in the medium term.

UK Market Turmoil - Further Volatility in Global Currencies

Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of September 28, 2022. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi US and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results. Amundi Asset Management US is the US business of the Amundi Asset Management group of companies.

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