Fears of a EU recession are easing after gas prices fall


Sterling gained back some of its losses yesterday mainly against the US dollar as Rishi Sunak was officially announced as Prime Minister. Sunak is the UK’s third PM in just two months. Markets will be hoping that Sunak offers a steady hand as Britain faces mounting economic problems.

In his first speech as Prime Minister, Sunak vowed to fix the errors of the departing Liz Truss, while also hinting that “difficult decisions” are to come. Sunak also made it clear that he wishes to restore credibility and trust in the government.

Markets have embraced the announcement of Rishi Sunak as the leader of the Conservative party – the pound continues to strengthen and gilt yields keep falling. Eyes now shift to the budget proposal due at the end of the month, as well as the upcoming Bank of England meeting on November 3rd.


Although Sunak’s appointment may have given Sterling a boost, we also see some dollar weakness as US Treasury yields continue to retract some of their recent gains. These declines come as markets are opening up to the idea that the November 2nd FOMC meeting may be the last meeting during which a 75 basis points rate hike from the Federal Reserve will be announced.

While the economic data may not suggest this is the case, recent ‘Fedspeak’ from San Francisco Fed President Mary Daly has caused market participants to question if the Fed may start to slow down as it enters restrictive territory.


Now that European natural gas prices have fallen back, fears of an economic recession over the next few months have eased – though to be clear, recession is still on the cards and has to be manage carefully by the European Central Bank.

Markets are now pricing in a 92% chance of a 75 basis points rate hike later this week but are expecting this to gradually reduce in the pace of hikes thereafter, with a 50 bps rate hike discounted in December and again in February 2023.