UK PMIs 'brutal reality check' for economy amid stagflation concerns

Matthew Ryan, CFA Ebury

Today's dour PMI figures are a brutal reality check for the UK economy. The surge in activity in April was always suspect, as businesses frontloaded orders ahead of anticipated war-driven supply disruptions. This fleeting optimism now looks like nothing more than a dead cat bounce. May's sharp slump in business activity paints a clearer picture - surging energy costs are hollowing out demand, squeezing exports, and straining margins.

Britain's economy is stalling precisely when inflation is set to rise - all the hallmarks of a classic stagflation trap. With the Strait of Hormuz set to remain effectively closed for some time, and the UK jobs market deteriorating fast, the outlook is fairly grim. Compounding the pain is acute political uncertainty, which will only breed further caution at exactly the wrong moment.

Against this backdrop, the case for a Bank of England rate hike in the summer is crumbling. Tightening to combat a supply-driven inflation spike is a dangerous game when the economy is losing momentum, particularly as a weak jobs market should limit second-order effects. Higher borrowing costs won’t reopen shipping lanes, but they will deepen the growth pain.

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 turns lower toward 0.7000 after mixed Australian jobs data

AUD/USD is losing ground toward 0.7000 in the Asian session on Thursday, following the release of the Australian August jobs report, which showed that the Unemployment Rate rose to 4.6% versus 4.5% expected, while Employment Change beat estimates, arriving at 39.5K. Traders also remain unnerved ahead of the critical Trump-Xi meeting.

USD/JPY keeps the red near 158.00 as Japanese Yen firms up

USD/JPY retreats from three-week highs and holds losses near 158.00 in the Asian session on Thursday. Surging Japanese bond yields lift the Yen amid looming intervention risks, while the US Dollar preserves overnight gains to a two-month high amid hawkish Fed bets and elevated US bond yields.

Gold braces for two-way risks as Trump-Xi meeting looms

Gold is consolidating the previous decline in Thursday’s Asian trades, at weekly lows below $4,300, awaiting the highly anticipated meeting between US President Donald Trump and his Chinese counterpart Xi Jinping later in the day.

Bitcoin slips to $84,000 on rate hike bets – Worldcoin, Pepe lead losses

Bitcoin (BTC) price trades below $84,000 on Thursday, extending losses after a 2% decline the previous day. The pullback aligns with renewed inflation and rate-hike concerns, as US composite and services PMIs rose to 58.4 and 58.7 in September. Worldcoin (WLD) and Pepe (PEPE) recorded double-digit losses over the last 24 hours, emerging as the worst performers.

US Treasury Secretary Bessent says US-China trade truce extended through January 10

US Treasury Secretary Scott Bessent said that the United States and China have agreed to extend a bilateral trade truce that was set to expire in November through January 10, Blomoberg reported on Wednesday. This move came after Bessent and China’s Vice Premier He Lifeng held an unscheduled meeting in Washington.

BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.