The British pound edged lower in European trading on Friday against a basket of global currencies, extending its negative streak for the sixth consecutive session against the US dollar and nearing a weekly loss as selling pressure persisted following recent UK economic data.

This week’s data showed that UK inflation remained unchanged in September, defying expectations and easing concerns about “entrenched inflationary pressures” among Bank of England policymakers — a development that strengthens the likelihood of an interest rate cut before the end of the year.

Price overview

• Today’s exchange rate: The pound fell 0.1% to $1.3317, down from an opening of $1.3325, after hitting a session high of $1.3332.

• On Thursday, the pound lost 0.2% against the dollar — its fifth straight daily decline — and touched a two-week low of $1.3306 on Wednesday after the UK consumer price data release.

Weekly performance

Over the course of the week, which officially concludes with Friday’s settlement, the pound has fallen more than 0.8% against the US dollar, on track for its second weekly loss in the past three weeks.

UK inflation

The Office for National Statistics reported on Wednesday that headline inflation in the United Kingdom rose 3.8% year over year in September, below market expectations of a 4.0% increase and matching August’s pace.

Core inflation rose 3.5% in September, also below forecasts of 3.7% and slightly down from 3.6% in August.

The stabilization of overall inflation, coupled with the slowdown in core inflation, has eased concerns about entrenched price pressures and may prompt the Bank of England to resume monetary easing and cut rates before year-end.

UK interest rates

• Following the data, market pricing for a 25-basis-point rate cut by the Bank of England in its November meeting rose from 40% to 50%.

• To reassess these expectations, investors are closely watching key UK data releases later today, including September retail sales and October manufacturing and services performance indicators.

Pound outlook

At Economies.com, we expect that if upcoming UK data come in weaker than expected, market bets on a rate cut before the end of the year will increase — likely pushing the pound further lower against major global currencies.

The Japanese yen fell in Asian trading on Friday against a basket of major and minor currencies, extending losses for the sixth consecutive session against the US dollar and touching a two-week low, as markets continued to price in “Sanae Takaichi’s stimulus pressure.”

Japan’s first-ever female prime minister is preparing to unveil a massive stimulus package aimed at supporting the world’s fourth-largest economy — a move that could further pressure Bank of Japan policymakers and likely delay any near-term steps toward monetary normalization or rate hikes.

Price overview

• Today’s yen exchange rate: The dollar rose 0.25% against the yen to ¥152.91, its highest since October 10, up from an opening of ¥152.55, after hitting a session low of ¥152.47.

• The yen closed Thursday down roughly 0.4% versus the dollar, marking its fifth straight daily decline amid expectations of expansionary policies from Sanae Takaichi’s new administration.

Weekly performance

Over the course of the week, which officially ends with Friday’s close, the yen is down about 1.5% against the US dollar, on track for its second weekly loss in the past three weeks.

Sanae Takaichi

In a historic milestone, Japan turned a new page in its political history on Tuesday as Sanae Takaichi won the premiership, becoming the first woman ever to hold the country’s top office.

According to NHK, Takaichi secured 237 votes in the first round of parliamentary voting, eliminating the need for a runoff in the 465-seat lower house.

Her victory followed an agreement between the ruling Liberal Democratic Party and the Japan Innovation Party to form a coalition government. According to Reuters, Takaichi accepted several Innovation Party policy proposals, including reducing parliamentary seats, offering free secondary education, and freezing the food consumption tax for two years.

Takaichi had faced major political risk after her abrupt split from Komeito — the LDP’s coalition partner for more than 26 years — earlier this month.

A close ally of the late Shinzo Abe, Takaichi is known for her support of the stimulus policies that defined “Abenomics.” Analysts believe her leadership could boost Japanese equities but keep the yen under sustained pressure due to continued loose monetary policy.

After winning the LDP leadership, Takaichi pledged to strengthen Japan’s economy through aggressive spending and criticized the Bank of Japan’s interest-rate hikes.

New stimulus package

Government sources told Reuters that Prime Minister Takaichi is preparing an economic stimulus package likely to exceed ¥13.9 trillion ($92 billion) to help households cope with rising prices and inflation.

The final size of the package is still being finalized, with an announcement expected early next month.

Japanese interest rates

• Takaichi, a proponent of flexible fiscal and monetary policies, said Tuesday that monetary decisions should be left to the Bank of Japan.

• Economists generally believe the new prime minister will not obstruct the BOJ from raising rates, though most expect the next hike to come no earlier than December.

• Finance Minister Satsuki Katayama said Wednesday that close coordination between the government and the BOJ is essential to ensure policy effectiveness.

• The Bank of Japan is scheduled to announce its next monetary policy decision on October 30. Futures markets currently price about a 20% chance of a quarter-point rate hike to 0.75%.

Analyst views

Kaburuso of the Commonwealth Bank of Japan said: “Given Takaichi’s desire for close coordination between the government and the Bank of Japan, the BOJ is likely to refrain from raising rates until the Diet approves her proposed economic package.”

Gold prices rose on Thursday as the US dollar held steady against most major currencies, allowing the precious metal to climb back above the $4,100-per-ounce threshold.

The rebound comes amid renewed geopolitical tensions following Washington’s decision to impose sanctions on Russia’s two largest oil companies, part of ongoing efforts by the United States to pressure Moscow economically to end the war in Ukraine.

At the same time, Russian President Vladimir Putin warned of a “crushing” response if Russia were attacked with US-made Tomahawk missiles, which Ukraine recently requested from Washington.

Investors are now looking ahead to key US inflation data due later this week for clues on the Federal Reserve’s next policy move. Market expectations strongly favor an interest rate cut at the Fed’s upcoming meeting.

Meanwhile, the US government shutdown has entered its 23rd day, contributing to a record surge in national debt, which has now surpassed $38 trillion for the first time in the country’s history.

As of 19:18 GMT, the US Dollar Index was up slightly by less than 0.1% at 98.9 points, after hitting a session high of 99.1 and a low of 98.9.

Spot gold rose 2.1% to $4,150.9 per ounce as of 20:14 GMT.

The International Maritime Organization (IMO) has decided to delay the adoption of its Net Zero Framework (NZF) for another year — a move that adds uncertainty but also provides an opportunity for deeper review and refinement of the proposed mechanisms.

Ahead of the Marine Environment Protection Committee (MEPC) meeting, a comprehensive study by Rystad Energy’s maritime decarbonization experts revealed major gaps in the current framework that must be addressed to ensure a fair and sustainable energy transition for the global shipping sector.

The postponement gives member states additional time to refine ambiguous or contentious elements of the framework and produce a more robust and actionable plan.

The study highlighted a substantial gap between projected clean fuel supply and targeted demand, worsened by infrastructure limitations, raising doubts about the feasibility of the proposed transition timeline.

It also identified ongoing imbalances in the carbon trading mechanism, forecasting that demand for Tier II offset units will exceed available surplus units until 2035 — a structural deficit likely to push trading prices toward the Tier II penalty ceiling.

The report stressed the need for careful design of the reward mechanism to avoid turning it into a mere fine collection system. While cost gaps are expected to narrow as technology matures and economies of scale improve, an effective incentive structure remains essential to encourage sustainable practices. By addressing these key issues, the IMO can develop a more efficient and equitable framework to support a low-carbon future for the maritime sector.

Rystad Energy noted that decarbonizing shipping is a complex challenge that extends beyond the industry itself, being closely tied to the global shift from fossil fuels to renewable energy. The findings suggest that progress will likely be slower than IMO’s current projections due to infrastructure constraints, technological readiness, and the interconnected nature of energy systems.

While the industry has shown strong commitment, practical limitations call for a pragmatic approach. The IMO is expected to use the extra year to develop a more realistic and balanced framework.

Junlin Yu, Vice President of Supply Chain Research at Rystad Energy, said, “The IMO should use this additional year to craft a framework that is both practical and fair.”

The company recently published a detailed report on the financial structure of maritime decarbonization under the Net Zero Framework, available on its official website.

The analysis was based on an extensive database covering conventional fuels, hydrogen derivatives, and biofuels, alongside a global review of alternative-fuel fleets, port infrastructure, and shipyard capabilities.

Under the NZF, vessels that meet emissions targets generate Surplus Units (SUs), while non-compliant vessels generate Rectification Units (RUs), classified into:

Tier I (RU1s): for vessels meeting minimum targets.

Tier II (RU2s): for vessels failing to meet required targets.

Non-compliant vessels can offset Tier II rectification units by purchasing surplus units from compliant ones.

Rystad’s projections show a complex interaction between surplus and rectification units. Surplus units are expected to start at 40 million tonnes of CO₂ equivalent in 2028, rising to 53 million by 2035, while RU2s could soar from 47 million to 234 million tonnes annually by 2035.

This imbalance will dictate market pricing, with Rystad forecasting that RU2 demand will remain above available surplus supply until 2035 — likely pushing trading prices toward the Tier II penalty cap.

According to the company’s analysis, surplus unit prices will be driven more by market dynamics than by biofuel price differentials.

Given the limited supply of advanced biofuels for shipping, surplus unit prices are projected to approach the penalty ceiling of $380 per tonne of CO₂ equivalent after transaction costs.

Yu added, “While surplus units will offset much of the Tier II penalties until 2030, this may also limit financial incentives for early adopters of zero-emission technologies.”

A structural shift is expected in 2031, as surplus units decline and compliance requirements tighten, increasing emission deficits among shipping companies. This will result in higher penalty revenues, strengthening the NZF Fund’s ability to finance industry-wide decarbonization efforts.

The study also highlighted design challenges in the framework — notably the two-year holding limit on surplus units, intended to prevent dilution of future emission-reduction efforts. However, this restriction could discourage early adoption of clean technologies, unlike the EU’s FuelEU Maritime regulation, which allows permanent storage of units.

Financial forecasts show that the IMO’s Net Zero Fund could grow significantly, with Tier I and Tier II penalties expected to generate around $13 billion in 2028 and nearly $79 billion by 2035.

Still, the analysis questions whether the framework will effectively support the shift to zero-emission vessels, particularly in its initial stages.

Rystad estimates that the required reward levels to achieve cost parity between e-fuels and conventional fuels will initially be prohibitively high, leading to a financial shortfall until 2030 — even if the fund’s full resources are allocated to incentives.

Over time, however, technological advances and production scaling are expected to narrow this gap, ultimately producing a substantial fund surplus after 2030.