Key Headlines:

•        GBP remains volatile in response to the Autumn Budget.

·        EUR strengthens following higher-than-expected German CPI data.

·        JPY is rising as Governor Ueda adopts a less dovish stance.

Recap

The Autumn budget’s key impact on markets was an increase in government borrowing. This led to a rise in UK bond yields, prompting a shift in expectations for a December rate cut of 25 basis points—odds dropped from 70% to 40%. Markets now anticipate around 1% in rate cuts over the next year, down from 1.25% projected before the budget. The British pound experienced significant fluctuations, initially declining, then rallying alongside rising yields, only to end the day lower overall, as reflected in market rate data.

Meanwhile, the euro strengthened on better-than-expected economic indicators, with both Q3 GDP and German CPI outperforming forecasts. This data reduced the likelihood of a 50-basis point rate cut in December, with odds falling from 42% to 22%.

In the U.S., data was mixed. While ADP payrolls exceeded expectations, growth softened as Q3 GDP came in slightly lower at 2.8%, and core PCE ticked up to 2.2%. The U.S. dollar closed the day weaker across most currencies.

Today’s Rates

Today's Interbank Rates at 10:16 am against GBP movement.

GBP>EUR – 1.1946

GBP>USD – 1.2984

EUR>GBP – 0.8368

EUR>USD – 1.0873

GBP>CAD – 1.8079

GBP>AUD – 1.9773

GBP>SEK – 13.876

GBP>AED – 4.7715

GBP>HKD – 10.097

GBP>ZAR – 23.006

GBP>CHF – 1.1236

GBP>PLN – 5.1998
 

Today’s Overview

This morning, inflation reports from both the EU and the U.S. are in the spotlight. The EU’s CPI data, out earlier, may provide additional momentum for the euro if it aligns with Germany’s recent positive trend.

The British pound is also attempting to regain ground, as markets process the effects of the Autumn Budget and track changes in Gilt yields.

Although a December rate cut now appears less likely, it’s uncertain whether the Bank of England will lean toward holding rates higher due to budget impacts or continue to prioritize domestic economic data. If inflation data soon shows sufficient cooling, the BoE might consider a rate cut, which could put some pressure on the pound.

Later in the day, the U.S. is set to release its core PCE data, which is the Fed’s preferred inflation indicator. Stronger-than-expected numbers here could offer support to the dollar.

In Japan, the yen started strong today following BoJ Governor Ueda’s comments that rate hikes remain a possibility if economic projections are met. The BoJ decided to keep rates unchanged in today’s meeting.

‍ 31^st October 2024

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