EU inflation and core inflation are currently at record highs making the task for the ECB very difficult. A 0.75% rate hike is expected today by the ECB but the key, as ever, is what the ECB will do beyond this meeting.
Key highs on sterling are as follows following the rebound off September’s lows:
GBPCAD: Highest since June 2022
GBPCHF: Highest since August 2022
GBPAUD: Highest since March 2022
GBPJPY: Highest since February 2016
GBPSEK: Highest since August 2022
GBPNZD: October’s trading range is the highest since February 2022
GBPEUR: Trading near the highs since September 2022
GBPDKK: Trading near the highs since September 2022
As per the report in The Times yesterday morning, the fiscal statement scheduled for October 31st has now been delayed to 17th November and will now be the Autumn Budget Statement. GBP and gilts initially sold off on the news but moves lower were short-lived with the pound breaking through October’s highs versus the US dollar. Oddly enough the delay in the fiscal statement may actually save the treasury £15 billion with borrowing costs dropping.
Sterling certainly does look more stable now than a month ago when we were flirting with the notion of parity on GBPUSD. However now there seems to be a united front between Chancellor Hunt and BoE Governor Bailey with the focus on bringing confidence back into the economy.
Another solid performance by the euro versus the dollar yesterday ahead of today’s ECB meeting. Markets are largely expecting a 0.75% rate hike much to the dismay of Italian President Meloni and French President Macron who have been critical of higher interest rates. The press conference will be 30 minutes later where the markets will look for clues on the pace and magnitude of further rate hikes.
Inflation in the eurozone is now near record highs but as we’ve seen in recent weeks, there is a feeling that the time for aggressive rate hikes could be ending. Particularly for the eurozone, there is a growing feeling the bloc is already in a recession and given recent falls in gas prices, it wouldn’t be too surprising if the ECB indicated lower hikes going forward.
Another day lower for the US dollar ahead of today’s third-quarter GDP data. The dollar weakened after the Bank of Canada only hiked by 0.5% versus the 0.75% expected amplifying the feeling that perhaps the Fed may well indicate smaller rate hikes in December and beyond.
Markets are expecting 2.4% growth, a rebound from the -0.6% in the second quarter. A lower than expected figure here and we should see a continuation of the dollar sell-off.
The other data point today is a preliminary estimate for the third quarter of the Fed’s preferred measure of inflation the core PCE index, expected to show inflation easing off to 4.5%. Same again, a lower print here and markets will likely continue to sell off the US dollar.
Equals Market Analysis– 27th October 2022
Today’s Market Rates
Today’s Interbank Rates at 09:38 am against sterling movement.
GBP>EUR – 1.1524
GBP>USD – 1.1600
EUR>USD – 1.0059
GBP>CAD – 1.5740
GBP>AUD – 1.7905
GBP>SEK – 12.595
GBP>AED – 4.2563
GBP>HKD – 9.1010
GBP>ZAR – 20.871
GBP>CHF – 1.1445
· EUR ECB Monetary Policy Decision Statement
· EUR ECB Rate On Deposit Facility
· EUR ECB Rate On Main Refinancing Operations
· USD Durable Goods Orders(Sep)
· USD Gross Domestic Product Annualized(Q3)
· USD Nondefense Capital Goods Orders ex Aircraft(Sep)
· EUR ECB Press Conference
· EUR ECB’s President Lagarde speech
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