United Kingdom: Economic Weakness and Fiscal Fragility

‍

Construction Downturn Deepens
The UK construction sector is now entering its eighth straight month of contraction, the longest slump since the early COVID era. Simultaneously, car sales drop 2%, while firms grapple with rising employment taxes by implementing job cuts. This mounting weakness strains consumer confidence and weighs on sterling’s outlook.

‍

Gilt Market Remains Volatile
Despite some stabilization, volatility persists in UK gilt markets following sharp rises in long-term borrowing costs. Elevated borrowing yields continue to undermine market confidence in sterling, as fiscal pressures mount.

‍

BoE Signals Cautious Policy Easing
Bank of England Governor Andrew Bailey indicates that while further rate cuts remain feasible, the window for aggressive easing is narrowing. Markets interpret this as a cue to tread cautiously, keeping GBP gains modest.

‍

United States: Labor Weakness and Fed Rate Cut Expectations

‍

U.S. Labour Market Slows Sharply
August private payrolls increase by only 54,000, underscoring a deceleration in job growth. Coupled with weaker jobless claims and rising layoffs, this data fuels expectations of imminent Fed rate cuts, exerting downward pressure on the dollar.

‍

Fed on Track for Looser Policy
Following the weak labor market signals, markets now forecast a 25 bps rate cut by the Fed next week, with some institutions even modeling a potential 50 bps cut. Overall, the outlook tilts dovish, positioning GBP/USD in the pound’s favor.

‍