Sterling hits post-Brexit highs as UK activity proves the 'most resilient of any major economy'

Matthew Ryan, CFA Ebury

A special mention has to go to sterling this month, which continues to be one of the standout performers in the G10 - the Sterling Effective Exchange Rate Index has this month hit post-Brexit highs.

The pound is heading into the end of the year with more going for it than most of its peers. The Bank of England’s 25 basis point hike - the first in three years - was hawkish, as not only did all nine committee members vote for a rate increase but one official, Catherine Mann, favoured a 50bp move. The Autumn Budget passed without any alarm, with the fiscal headroom rebuilt and the risk premium attached to gilt yields fading.

The data should keep that support in place for now. UK activity has been the most resilient of any major economy: third-quarter GDP growth of 0.7% was the fastest in two and a half years, and monthly GDP has beaten consensus for five straight months. The Citigroup UK economic surprise index has been running around its highest level since May 2023 and has shown a clear divergence with its Euro Area equivalent - something that is supporting the GBP/EUR pair. Upcoming jobs and inflation data on 17th and 18th November are the next tests, and further upside surprises here could keep a further bid under GBP.

The harder question is how much the Bank of England will actually deliver. Swap markets are now assigning around a three-in-four chance of another hike as soon as the next meeting in December.

We are hesitant to be swept away with the market and still have February as our base case, while we see the 100 basis points of hike priced in by the end of 2027 as fanciful.

With the jobs market fragile, high gilt yields doing some of the tightening and so far little evidence of second-round inflation effects, skipping the December meeting would make sense to us, particularly as this would give the MPC extra data to digest. With the political risk faded, the rate path is now firmly established as the main near-term driver of the Pound.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

AUD/USD seems vulnerable near 0.6800, 10-month low amid bullish USD

AUD/USD languishes near a 10-month low during the Asian session on Friday, awaiting a break below 0.6800 before the next leg up amid a bullish US Dollar. Firming Fed rate-hike expectations, along with fading hopes for US-Iran diplomacy, help the USD hold gains at its highest level since April 2025. Moreover, the RBA’s dovish tilt undermines the Aussie and backs the case for further losses.

USD/JPY bulls turn cautious near 160.00 amid intervention risks

USD/JPY enters a bullish consolidation phase around its highest level since early September as bulls turn cautious amid intervention risk near 160.00. Meanwhile, the downside seems cushioned as the wide US-Japan interest rate gap keeps the Yen carry trade active. Furthermore, the possibility of a jumbo Fed rate hike and Middle East uncertainties hold the US Dollar near a 19-month top, supporting the currency pair.

Gold advances marginally; still below $3,900

Gold attempts a mild bounce and approaches the $3,900 region per troy ounce at the end of the week. The marginal recovery in the precious metal comes on the back of a vacillating mood surrounding the US Dollar along with mixed US Treasury yields following the release of US October Producer Prices.

Bitcoin just posted five straight losing weeks, and the storm may not be over yet

Bitcoin is struggling to find support, slipping below $70,000 as multiple headwinds threaten to push the Crypto King lower. The much-anticipated “Uptober” rally failed to materialize, with persistent selling pressure and widespread liquidations instead reinforcing the “Rektober” narrative.

Week ahead – Fed Minutes, inflation data and Nvidia earnings to guide investors

Fed minutes may add to hawkish tone as bets of 50-bps hike grow. Nvidia to report earnings as bar to impress high after spy scandal. Trade and geopolitics to be focal point of Trump-Xi summit.

What the US CPI headline doesn’t tell you about inflation

Brent crude has fallen about a third since mid-October on hopes the Iran war is ending, but diesel, freight and fertiliser costs haven't followed. Those costs reach US consumer prices in stages through 2027 and could keep inflation high after gasoline gets cheaper.