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  • richard evans

Warnings of global recession as central banks continue to eye higher rates

Good morning

GBP struggled to make ground on USD overnight, it reach almost 1.1100 in the early hours but slipped back below 1.1000 as the UK employment data was released. As I type however we have crept back to mid-1.10s helped by a bit of USD weakness across the board. UK government will announce its fiscal plans earlier than expected on 31st Oct, to coincide with OBR forecasts and ahead of the BoE rate announcement on 3 Nov. There is likely to be increased volatility around this time, sharp spending cuts are feared as the government need to find some £60bn in savings to meet fiscal rules. Meanwhile the BoE have unveiled more measures aimed at increasing financial stability, extending purchases of gilts as the bonds come under pressure once again.

Comments from EU warn that Fed rate rises do raise risks of a global recession. This follows similar comments from IMF and JPMorgans Dimon. Whether this would be enough for Fed to alter their thinking remains to be seen, Feds Brainard was very slightly cautious when she spoke, saying policy will be restrictive for some time but that uncertainty remains high and she has an eye on global risks. Previous Fed comments had been very much along the lines of ‘we know the risks but still need to do a lot more’.

A German government source has said they have no plans to support joint EU debt, despite Scholz earlier suggesting they may indeed back the plans. EURUSD currently 0.9725, a level that capped the upside overnight and seems to be quite a pivotal area. A failure to break above here surely opens the door for a return to mid-0.96s or lower.

USDJPY was up at 145.85, the area where Japan recently intervened. We have seen comments from Japan FinMin Suzuki who said they are watching Yen with urgency and will respond to excess yen moves, while adding they will explain their stance on yen to G20, the next Leaders meeting is November this year but I believe Finance Ministers meet this week. Coordinated intervention, anyone? A top currency official in Japan added that they are ready to take necessary steps against excessive volatility..

AUD has come under pressure since the lower than expected 25bpos rate rise and from the fear of global recession, AUDUSD traded to 0.6250 for the first time since the Covid outbreak in 2020 and GBPAUD now trades up at 1.7600, not far from the recent high just above 1.7700 which itself marked a three month high.

The Russian attacks on Ukraine show just how much impact the high profile Kerch bridge attack had on Putin and his colleagues. The attacks mark a renewed escalation in the crisis and suggest Putin needs to demonstrate his resolve in the wake of recent military gains by Ukraine.

The calendar today is filled with central bank speakers, mostly coming this afternoon and into the early evening. We watch for any change of message from Fed officials, while we see if BoE speakers mention anything on the latest gilt purchases and whether the program will continue after its scheduled end this Friday.

- 13.45 ECBs Lane speaks

- 16.30 Feds Harker speaks

- 17.00 Feds Mester speaks

- 17.00 SNBs Jordan speaks

- 19.00 BoEs Cunliffe speaks

- 19.35 BoEs Bailey speaks

- 23.00 RBAs Ellis speaks

- 07.00 UK GDP, industrial production,

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