Good morning
GBP suffered yesterday, trading down to 1.2850 against USD by the NY close, while GBPEUR pushed down to 1.1845. The full reason behind this move is not clear. I receive various pieces of research from banks and not only have none of them come up with a reason, none have really mentio9ned the move at all. OK I understand in the scheme of things it is not exactly a huge move, but it is pretty consistent and as I type GBP is only 10 pips or so off those lows.
Obviously we have the Bank of England rate announcement next week and the chances of a rate cut has increased over the past week or two, no doubt having some effect on GBP. This certainly not a done deal however. If there was a rate cut, voting is expected to be split 5-4, so just one different vote would change the outcome. The news that the new Chancellor Reeves will announce a spending gap of some £20bn next week could also be weighing on GBP, that money will have to come from somewhere, and that ‘somewhere’ is likely to be our pockets. Still, if every member of our 60 million population stuck in an extra £330 or so, we’d cover that deficit. I know, I know, the numbers are not quite right, not every one of the 60 million can pay anything at all.
One other place to save a decent chunk of that £20bn would be to change the plans for a 5.5% pay rise for teachers and NHS workers. There are around 570,00 teachers in the UK, and some 1.5m employed in the NHS. Assuming an average wage of £40,000, that’s a wage bill of some £83bn. A 5.5% increase would cost over £4.5bn. Now, I’m being a little harsh here I know, and I’m guessing on the average wage, but while we know those industries are hugely important and a huge struggle, they are pretty recession-proof and as Covid highlighted, safe industries in terms of job security. Let’s not get started on the pensions. So, how about we leave the 5.5% for a year or two, I’m sure they will all understand given most of them probably vote for Labour anyway. It brings the per-head cost of covering the deficit to nearer £250. All in it together and all that.
Obviously the issue here is that 60 million people cannot pay £250. Some are babies and children, some are on benefits etc. So let’s focus on the upper end of earners. There are 6.3 million higher rate tax payers in the UK, so if we target just those that per-head number goes up to around £3,000. £250 we could agree to. £3,000? Well I’ll tell you where I am. I’m out.
Anyway, now that I have completely scuppered any chances I ever head of becoming Chancellor, back to the currency markets. The latest US GDP numbers were out yesterday, we saw a decent uptick form the previous quarter of 1.4% to 2.8%, surpassing the estimated 2%. US equities were mixed, they opened weaker, recovered strongly, then fell again to close not far from their opening levels.
USD did push higher on the release, most notably against Yen, with USDJPY rallying from its morning lows of 152.00 to around 154.25. This has taken GBPJPY off its lows around 196.00 to 198.00.
It’s getting late so I might wrap it up there even though I’m sure there is plenty I should be writing instead of wittering on about teachers pay. Today we have the core PCE deflator from the US, a key release and certainly one the Fed watch closely. It is expected to show a small drop from last months 2.6%, we could see some movement in the market if it stronger or weaker than expected.
Looking to the sports side of things, we have the Olympics officially starting today, although there have been some Olympic football and rugby matches already. I really hope for a safe, uneventful games. Unfortunately, as I type I see news that the French high-speed rail network has come under a coordinated sabotage attack, resulting in delays and cancellations, no doubt disrupting travel for many trying to get to the opening ceremony.
The next few days also brings the next cricket test match between England and West Indies beginning today, and the Belgian F1 grand prix this weekend from Spa, one of the most stunning race circuits with the iconic ‘Eau Rouge’ section of track. The weather looks reasonable over the weekend and improves into next week. Perhaps we’ll get a bit of summer after all.
- 13.30 US Core PCE, personal income/spending
- 15.00 US Michigan sentiment survey
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