Global stock markets are facing pressure due to central banks, notably the Federal Reserve, asserting that they will keep interest rates elevated for an extended period. This has led to US Treasury yields reaching their highest levels in several years. Additionally, discouraging economic data from China is contributing to a risk-averse atmosphere, bolstering the strength of the US dollar.

In the United Kingdom, the market is factoring in the likelihood of one more interest rate hike as the Bank of England grapples with exceptional challenges, including persistently high inflation, a tight labor market, and the drag of high interest rates on demand. Rising oil prices and a weakening pound, which make imports more costly, are exacerbating inflationary pressures, heightening the risk of economic stagflation.

The US economy remains on a robust growth trajectory, driving the momentum of the US dollar. There is a genuine possibility of another interest rate hike in the coming months. However, there is also a looming risk of a government shutdown if Congress fails to reach a funding agreement in the next week.

In Europe, mounting concerns about a recession are exerting downward pressure on the euro and increasing the likelihood that interest rates have reached their peak following the recent increase. Markets are pricing in unchanged monetary policy until late 2024, at which point an initial rate cut is anticipated.

Across currency exchanges, the strength of the US dollar remains a significant driver of sentiment. GBP/USD has dipped to new 6-month lows around the 1.2200 level, while GBP/EUR has fallen to a 2-month low of 1.1500, where some initial demand is emerging.