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UK chancellor Jeremey Hunt unveils the autumn statement today
Sterling gained almost 0.5% against the euro while trading flat versus the US dollar in yesterday’s session.
UK chancellor Jeremy Hunt will unveil his eagerly anticipated Autumn statement this afternoon. It’s certainly a different atmosphere from this time last year, when Hunt was forced to make a speech to calm markets in response to the disastrous “mini” budget. That’s not to say the UK is in a particularly strong financial position, but there is at least a platform of stability from which it can build. There’s sure to be some currency moves, so why take the risk – call your trader today!
After a combination of interest rates and inflation helped swell treasury coffers, there is widespread speculation that Hunt could cut some taxes in a dash for growth. All will be revealed this afternoon, but Hunt’s fiscal wiggle room is limited, particularly after he made his pledge not to contribute to inflation.
Yesterday, Bank of England (BofE) governor Andrew Bailey said that markets were underestimating the persistence of UK inflation. In a stark warning, Bailey said “too much weight” was being placed on recent declines in the headline figure.
Chrstine Lagarde has made similar statements recently, with the European Central Bank’s president suggesting she did not expect rate cuts within the next couple of quarters. In a speech on Tuesday, Lagarde said “this is not the time to declare victory” over inflation.
US existing home sales undershot expectations in October, coming in at 3.79mn compared to 3.95mn in September. Despite signs that inflation is slowing, FOMC minutes released last night show the Fed’s policy committee still leans to the hawkish side. “The fact is, the Committee is not thinking about rate cuts right now at all,” chair Jerome Powell said.
Canadian inflation meanwhile surprised to the upside. Market forecasts put October’s read at 3.3%, so the 3.1% result represents solid progress on the north side of the great lakes.
Israel and Hamas have agreed a four-day ceasefire along with the staggered release of prisoners and hostages from both sides. Israeli prime minister Benjamin Netanyahu had yesterday indicated both camps were close to agreeing a multi-day truce during talks mediated by Qatari officials.
The OpenAI board have reached a tentative agreement for ousted executive Sam Altman to return as CEO. The climbdown follows the circulation of a letter signed by a majority of OpenAI staff threatening a devastating defection to Microsoft should Altman not be reinstated.
BofE deputy governor Dave Ramsden said the UK’s break from the EU had served to reduce foreign investment in the British economy. Ramsden said the 2016 referendum had contributed to a lower “speed limit” for the UK economy.
Swedish developer Northvolt has launched a “breakthrough” sodium-ion battery, the company announced. According to Northvolt, the new technology could reduce Europe’s dependence on China for the raw materials used for electricity storage, a key component of the EU’s dash to net zero.
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GBP: Headroom for Hunt
The pound improved by around 0.35% against the euro yesterday, while earlier gains on the US dollar were chased back following the release of the Fed’s FOMC minutes.
Jeremy Hunt’s fiscal headroom – the term used by economists to denote the gap between actual public borrowing and forecasts – has improved since March. Some estimates now put it at as much as £15bn, which would allow much more substantive fiscal loosening than had been expected.
However, that figure is much thinner that the average of £25bn enjoyed by a run of chancellors stretching from George Osborne to Rishi Sunak himself.
GBP/USD: the past year
EUR: PMI comparison looms large
The euro lost under half a percent against the greenback and sterling in yesterday’s trading.
This week’s flash manufacturing PMI releases – from the UK, EU and the US – will give currency strategists ample fuel for their theories. Should any set emerge as obviously inferior, expect a sharp sell-off heading into the weekend.
USD: Home sales plunge to lowest since 2010
The US dollar made gains against the euro while trading largely flat against the pound.
Tuesday’s figures showed that existing home sales had slumped by -4.1% month-on-month, down to their lowest levels in over 13 years. The average rate on the popular 30-year fixed-rate mortgage jumped to levels last seen in late 2000, as high interest rates weighed on demand in October.
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