EBC Markets Briefing | Sterling up as inflation is set to tick higher

The British pound edged up early on Tuesday as market participants remained cautious on France worst riots in decades. A Houthi missile attack on a Yemen army camp marks escalation in the Middle East.

Apart from higher energy prices, the UK is struggling to get the power where it is needed. A record of just over half a billion pounds were used to balance its power system last month.

Grid bottlenecks prevented enough electricity from reaching London and southeast England on Monday, forcing the operator to request emergency power imports from France to keep the system secure.

The problem adds to price pressures, while annual inflation is expected to hit a 9-month high in September. The BOE forecasts that inflation will top 4% in early 2027, double its 2% target.

Soaring gilt yields have wiped out Chancellor Healey's narrow budget buffer. Funding new cost-of-living support will now require tax hikes, likely focusing heavily on banks.

The UK GDP grew by 2.1% in August, beating economists' expectations. According to Deutsche Bank, the resilience story continues for this fastest growing G7 economy.

EBC Financial Group analyst say the pound hovers its around recent peak. A decisive break above the overhead resistance at 1.3330 would confirm a continuation of the uptrend toward 1.3360.

Asset Recap

As of market close on 19 October, among EBC major products, AXT shares led gains after a steep losing streak that had taken the stock down in eight of the prior nine sessions.

Japanese and South Korean equities rebounded from last week's technology-led rout. Results from US megacap companies this week are expected to test confidence in the AI trade following its recent setbacks.

The Australian dollar strengthened on risk-on mood. China's economic growth accelerated to 4.5% in Q3 from a year earlier thanks to robust foreign demand for the country's technological goods.

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EBC Financial Group Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC Global Financial Collaboration or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.