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GBP supported by UK employment data, EUR under pressure

richard evans

Good morning

 

The lack of economic data and a partial US holiday served to keep currency markets in a tight range yesterday.  At one stage it looked as though the US dollar would push higher, GBPUSD traded down to 1.3030 in the afternoon but by the London close it was back up around 1.3050.  The Euro struggled however, trading down to 1.0900 against USD and to 1.1970 vs GBP.   Overnight we have seen further Euro weakness which has taken EURUSD to 1.0885 and, with GBPUSD holding around 1.3050, GBPEUR is higher at around 1.1985. 

 

GBP has seen a bit of support from some stronger than expected UK employment numbers this morning.  Employment increased by a decent 373,000 while the unemployment rate dipped to 4%, which could well see the Q3 number lower than even the BoEs forecasts.  The average earnings number was down to 4.9% as had been expected.  I’ve seen some upside trade ideas, more based on technical than fundamentals, but this set of employment numbers will not encourage the BOE to cut rates drastically, that’s for sure. 

 

USDJPY pushed up to within a whisker of 150.00 for the first time since the beginning of August, GBPJPY in turn pushed up to the high 195s, an area that has capped the upside several times from late Sept.  USDJPY is now down at 149.30 with GBPJPY 194.85, the slightly stronger yen coming despite comments that we may not see a BoJ rate rise until March 2025.

 

Another 50bps rate cut from the Fed is looking less and less likely as Feds Waller says they should proceed with more caution and move to a gradual rate cut policy, even pausing rate cuts if required.  He added that the October employment data may be affected by the recent hurricanes and that Fed can overlook the impact of those.  Kashkari said modest rate reductions will be appropriate in the coming months. 

 

Oil prices have dropped as Israel says targets it is looking at in Iran will be military rather than oil or nuclear facilities.  UK brent is now US$74.50, down some US$3 from yesterday, while WTI has fallen buy a similar amount to US$70.90.  Some talk as well that Saudi Arabia may increase production amid ‘deteriorating cohesion’ between OPEC+ members.

 

RBNZ DepGov Hawkesby said rates are heading towards neutral but that the pace of cuts depends on incoming data.  NZ FinMin Willis said she welcomed the recent 50bps rate cut, saying inflation is trending back to target.  NZD remains under pressure amid the talk of another potential 50bps rate cut.

 

China trade overnight showed a surplus of nearly $82bn , lower than expected but still a whopping surplus.  Exports were well down, imports increased slightly.  Most talk on China continues to revolve around stimulus plans.  

 

Trump is in the lead in the US presidential race, as far as the bookies are concerned at least.  There has been a fair bit of talk as to whether Trump, if elected, would weaken the US dollar.  Historically I think Trump has preferred a weaker USD but the feeling is now he’d like to keep a stronger USD.  Regardless, it will be difficult for him to weaken the Dollar unless he were to install a particularly dovish Fed chairman.

 

The next day or so is predominantly about inflation, kicking off with Canada this afternoon, NZ overnight and then UK in the early hours of tomorrow morning.  Both Canada and New Zealand are not only seeing rate cuts but also additional cuts forecast, with a move lower of 50bps possible for each at their next meeting.  For them it would take quite a strong surprise for the market to dismiss all rate cut talk, but could perhaps make the prospect of a large cut less likely.  Any weak numbers should see the case for a 50bps cut reinforced.

 

For UK inflation, the case remains less clear and as I mentioned yesterday, regardless of the reading there is a chance it gets overlooked by BoE who will instead prefer to look at the implications of Reeves budget in late October.  Quite what lies ahead for us is not known but she’ll be raising some taxes and National Insurance contributions, even at the risk of going against the Labour party manifesto. 

 

Have a great day

 

-  09.00 ECB lending survey

-  10.00 German ZEW

-  10.00 EU industrial production

-  13.30 CAD CPI

-  13.30 US NY empire state manufacturing index

-  18.00 Feds Kugler speaks

-  19.00 US monthly budget statement

-  22.45 NZ CPI

-  07.00 UK CPI, PPI, RPI

 

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