Thin trading conditions on Friday with the US observing Veterans Day saw dollar sellers stay in control, with GBPUSD and EURUSD hitting the highs last seen in August.
Fed member Susan Collins commented on Friday that the risk of overtightening monetary policy has now increased – that’s despite the University of Michigan’s 1-year and 5-year inflation expectations coming in higher than expected on Friday.
Back to the midterms, the Senate was taken by the Democrats with the House still undecided. The Republicans have 212 seats and still need another 6 to win the House.
Over the weekend there was another factor to add to the renewed optimism of reopening of China’s economy, with a string of measures announced to support the property market.
Key data this week will once again highlight real wages and the cost of living crisis, with the release of wages data and core inflation.
Since peaking in April this year, we have seen the difference between average weekly earnings (excluding bonus) and core inflation decrease.
With expectations of core inflation expected to ease and wages set to increase, this difference could once again be smaller.
For GBP, Thursday will see the much-awaited Autumn Statement. Tax rises and spending cuts are expected in an attempt to plug a black hole of £50bn. 40% of the savings are expected to come from tax hikes, with 60% made up of spending cuts.
What could be a key point for markets will be when the government expects to administer the bulk of the changes. According to two people familiar with the plans, the Chancellor is expected to delay much of the £50bn in savings until the final years of the five-year forecast, to protect the economy from a long and deep recession, as well as shoring up Tory support ahead of the next general election.
Should there be suggestions of backloading the bulk of the fiscal changes to make the recession as short and shallow as possible, then markets could well see this as supportive for GBP going forward. The other key thing we will need to keep an eye on will be the Chancellor’s plans on energy bills. The current cap ends in April, but additional measures could stave off inflation from rising further, and thus take pressure off the BoE hiking in 2023.
The USD has clawed back some of the losses in early trade this morning, after Fed Waller warned that markets should not read too much into one inflation print. However, coming into this morning we are seeing European markets once again sell USD. Given the magnitude of the USD sell-off last week (around 4%), it wouldn’t be too much of a surprise should the USD consolidate, especially if Fed speak this week continues to push against that weaker inflation print from last week.
Equals Market Analysis– 14th November 2022
Today’s Market Rates
Today’s Interbank Rates at 09:43 am against sterling movement.
GBP>EUR – 1.1429
GBP>USD – 1.1799
EUR>USD – 1.0323
GBP>CAD – 1.5671
GBP>AUD – 1.7629
GBP>SEK – 12.268
GBP>AED – 4.3332
GBP>HKD – 9.2500
GBP>ZAR – 20.382
GBP>CHF – 1.1153
– EUR Industrial Production (MoM) – September
– Consensus: 0.30%
– Previous: 1.50%
EUR Industrial Production (YoY) – September
– Consensus: 2.8%
– Previous: 2.5%
– USD: Fed’s Brainard and Williams
– EUR: ECB’s Panetta, Centeno, and Guindos
– CHF: SNB Chairman Jordan
This document has been prepared solely for information and is not intended as an Inducement concerning the purchase or sale of any financial instrument. By its nature market analysis represents the personal view of the author and no warranty can be, or is, offered as to the accuracy of any such analysis, or that predictions provided in any such analysis will prove to be correct. Should you rely on any analysis, information or report provided as part of the Service it does so entirely at its own risk, and Frank eXchange Limited/Manor House Foreign eXchange Limited accepts no responsibility or liability for any loss or damage you may suffer as a result. Information and opinions have been obtained from sources believed to be reliable, but no representation is made as to their accuracy. No copy of this document can be taken without prior written permission.