The pound sterling started this October period with a pretty convincing rebound. The rebound in GBP/USD began in the second half of the European session yesterday.
Furthermore, it continues to this day (1/October). As word got written, the sterling had climbed to a range of 1.3495 against the US dollar based on the data so far.
The GBP/JPY is still lacklustre, but EUR/GBP is already away from its three-month high achievement. The energy crisis continues to tear Britain apart.
More and more suppliers are collapsing, bringing the total number of UK energy companies which reach out of business has reached even ten. That is quite worrying.
The Crisis Impact is Fading for Sterling
More than 1.7 million customers have lost their energy suppliers. It means that the government may have to step in to help with the switch to new energy providers.
However, the news of electricity rationing in China gives the signals that the energy crisis has globalised and is not a challenge for the UK alone. It is also faced by the other countries.
Meanwhile, the shock effect of the energy crisis for the pound sterling is likely to start to shrink. A number of other factors actually boosted this currency in the market.
The Improvements in UK GDP data for the second quarter of 2021 have reduced the anxiety about the risks of stagflation. Rising UK government bond yields also opened up opportunities for sterling appreciation.
What the Experts Said
Brent Donnelly, the President of Spectra Markets and author of Alpha Trader, said that he is no longer "bearish" on the pound. He believes the market panic over fuel scarcity is over.
On the other hand, a "tantalizing nominal" will attract the capital flows once real interest stabilizes. The Nominal which is meant by Donnelly is the bond yield.
In the other words it is the payment of coupons for UK government bonds. Yields have skyrocketed recently as investors anticipate a rise in inflation and bank of England (BoE) interest rates.
The Rising bond yields usually encourage the strengthening of related currencies. Therefore, the rise in UK government bond yields that coincided with the slump in the pound yesterday.
Why the Gap Is Happened
The condition above was actually became an astonishing phenomenon. Some analysts argue that the gap arises because the real yields have not increased along with nominal yields.
Well, Donnelly argues investors will refocus on buying the pound once real yields stabilize. That stabilization is possible after inflation expectations and a surge in energy prices ease.
Kristoffer Kjær Lomholt, Chief Analyst of Danske Bank, is also bullish on the pound based on the current situation happened in the market. But he has a different reason. He gave his opinion for that.
He said that the Gbp usually strengthens in an investment environment that experiences tighter monetary policy, the manufacturing sector peaks, and the USD is stronger.
Euro is Declining
Meanwhile, Euro is not in a good position where this currency is being under 1.1600 to the US dollar in the middle of a European trading session. That was happened although the inflation data increased.
The inflation increase. This time maybe will not change the EuroZone outlook interest rate. However, it may add the new problem for the European Central Bank.
Eurostat reported that the Eurozone inflation accelerated by 3.4 percent (Year-on-Year) in September 2021. The figure was the highest since September 2008, surpassing consensus expectations of 3.3 percent.
The increase in prices mainly occurred due to a surge in energy prices and supply chain disruptions. The price of durable goods jumped 2.3 percent, impacting various sectors ranging from car factories to computers.
