Doom & Gloom Sentiment for the UK & Eurozone


As expected, there was a lot of volatility in the market last week. Elevated interest rate hike expectations provided Sterling with strength at the beginning of the week, with GBP|EUR peaking at 1.1770 and GBP|USD at 1.2800. However, the run for Sterling was short lived as more doom and gloom of a UK recession appeared to be back on the table.

Consensus for last week’s UK PMI figures released were expected to come in slightly worse than last months, however the market reacted immediately against Sterling when official prints were much lower than expected. Recording its thirteenth consecutive drop, British manufacturing activity experienced its steepest decline since the pandemic-induced downturn in 2020. The data for this period also revealed another decrease in fresh orders for products, with businesses attributing this trend to client hesitancy and reduced disposable incomes for households, induced by elevated interest rates.

With UK recession fears increasing, investors and speculators sold off the Pound towards the back end of last week with Sterling dropping against the Euro and Dollar to 1.1635 and 1.2560 respectively.

On a more positive note, shop price inflation slowed to 6.9% in August, down from 8.4% in July, marking the lowest level in almost a year. This was driven mainly by the reduction in costs of food for products such as meat, potatoes and cooking oils. The fall shows that the BoE’s strategy is working to some level and this will likely take some pressure off them to keep raising rates, but in turn will mean the Pound is likely to suffer.

Looking ahead for the week, the data calendar is extremely sparse for the UK. Investors and speculators will be looking at data releases from the Eurozone and US.


Data releases out of the Eurozone last week were equally as worrying as the UK, with PMI figures also coming in way below consensus across the board.

Christine Lagarde, ECB president spoke at the Jackson Hole Symposium on Friday stating that “While progress is being made, the fight against inflation is not yet won”. She also stated that interest rates will need to “stay high for as long as necessary”. The still high inflation, coupled with rising rates have elevated fears of a recession in the Eurozone.

On the data front for the Eurozone we have Germany CPI figures due Wednesday. We also have Eurozone harmonized CPI due Thursday. With CPI being the main measure of inflation, any increase from Europe’s biggest economy is going to put more pressure on the ECB to raise rates in September. Currently the market has priced in a 50/50 chance.


All eyes were on Powell during the Jackson Hole Symposium on Friday. He delivered his speech stating that the Fed would stick by its decision to stamp out inflation until the job is done, maintaining his Hawkish stance.

Even though inflation does appear to be coming down in the US, Powell was cautious not to be too optimistic until they are closer to their 2% target. He added “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective”.

Markets are currently pricing in that there will not be a rate hike in September while the Fed continues to monitor the data, with a 50/50 chance of a hike in November.

The US is heavy on data releases this week with GDP figures on Wednesday, Core Personal Consumption Expenditures Thursday and Non-farm payroll figures on Friday. Any uptick in these figures vs consensus will provide the Dollar with more support.

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