Pound in focus as new PM is sworn in, RBA hikes rates

EEuropean markets started the week badly yesterday after the announcement last week that Gazprom would not reopen its Nord Stream 1 gas pipeline as planned this weekend.

Russia blamed the pipeline problems on EU sanctions for the extended shutdown, and that if they weren’t lifted, the shutdown would likely remain permanent.

This shouldn’t have surprised most people, given that Putin was expected to play this card at some point. Now that he has, Russia doesn’t really have anywhere else to go, and although natural gas prices rose, they closed well off the day’s highs.

This does not mean that the coming winter will not be difficult, it will be, but the focus now seems to be on reducing energy consumption, as well as diversifying into other fuel sources.

Yesterday also saw the confirmation of Liz Truss as Britain’s new Prime Minister as she heads to Balmoral and her audience with the Queen. Once this is done, the focus will be on the fiscal response to protect consumers as well as businesses from the sharp rise in energy prices that is looming in October.

The pound managed to recover from its intraday lows yesterday following yesterday’s news, but the key test will be how markets view the government’s next steps when it comes to dealing with the current crisis . Opinion appears to be mixed on whether all the bad news is currently priced into the pound, but it appears to have risen a little from yesterday’s lows.

Although some short-term borrowing is unavoidable given the current challenges, the focus will be on the steps the government intends to take to keep energy prices low and address the UK’s long-term energy security. United.

Asian markets had a mixed session, with the absence of US markets which were closed, the focus on the RBA, which carried out a further 50 basis point rate hike from the Australian central bank, the fourth consecutive meeting where rates were increased .

The bank added that further rate hikes would be needed in the coming months and that it remained committed to bringing inflation down to 2-3% over the medium term. The RBA said it expects inflation to peak at 7.75% this year and decline to around 4% in 2023.

With the US markets back from their extended weekend break, we will see if the latest ISM services index for August continued to deviate from the S&P services index which deteriorated further to 44.2 in its recent flash PMI.

EUR/USD – we saw a new marginal low at 0.9878 keeping the pressure on for a move towards 0.9620. Absent a move through the recent highs in the 1.0120 area, risk remains for lower levels as we head towards the 0.9000 area.

GBP/USD – remains under pressure, slipping below the 1.1500 area, approaching the March 2020 lows in the 1.1410/15 area. A break below here opens the 1.1000 zone. So far there has been little evidence of a rebound, with resistance at the 1.1750/60 area.

EUR/GBP – continues to struggle around the 0.8680 area, with broader resistance at the June highs at 0.8720. Support remains in the 0.8580 area.

USD/JPY – continues to look well supported above the 139.40 area and last week’s move above 140.00. This area now becomes support. This now opens up the possibility of a move towards 145.00 and the 1998 highs at 147.70.

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