Yen up as BoJs Ueda hints at a Dec rate rise

Good morning

It was another pretty quiet one in the FX world yesterday, US dollar was a touch higher but it was really a bit of EUR weakness that stood out, not helped by ongoing threats from Putin over Ukraine’s use of long range missiles supplied by US to attack targets inside Russia.  There are also reports that UK-supplied missiles have been used by Ukraine to attack Russia for the first time.  There is some thinking that the use of such missiles may have come too late, as Russia seems to be making advances along the front line in Ukraine.

EURUSD slipped back to the very low 1.05’s and also dropped against GBP as well, with GBPEUR moving up around 1.2025.  GBPUSD traded to 1.2635, other GBP crosses were also mainly lower, GBPJPY was as low as 196.25, some 150 pips off yesterdays morning highs.

There wasn’t much else on offer yesterday, we heard from a few central bank officials but there wasn’t much that we’d not heard before.  The calendar is a little busier today and again we have several central bank officials speaking including BoEs Mann who was the sole dissenter a the last meeting, preferring to keep rates unchanged.

For now, GBPUSD is 1.2640, EURUSD off the lows at 1.0535 which brings GBPEUR back to that 1.2000 level.  GBPJPY is lower, now 195.55 after BoJs Ueda said that BoJ take exchange rate moves into account when deciding monetary policy, a hint perhaps that a weaker yen could push them to raise rates at their next meeting on Dec 18th/19th.  The latest Japan inflation numbers are out tonight.

AUDNZD has broken out of its recent range, trading up to 1.1110.  The move comes as Westpac push out their forecast for the first RBA rate cut to May 2025 from Feb 2025, while NZ chief economist has said NZ’s economic downturn is deeper and will last longer than previously expected. 

The sabotage of two underwater cables in the Baltic Seas has caught my attention, with press reporting that a Chinese vessel may have deliberately broken the cables by dragging its anchors along the sea bed.  A Danish Naval boat stopped and personnel boarded the boat but I’m not sure what happened after that.  Difficult to point the finger as there were apparently a lot of vessels in the vicinity but this one just happened to be in the right place at the right time.  Twice. 

Turkish interest rates are expected to stay on hold at 50% at this mornings CBRT meeting.  There has been a suggestion after recent comment from Erdogan that the central bank may come under political pressure to lower interest rates before time but it is quite likely his comments were misinterpreted and he really means that rates can fall when inflation is on a downward path.   Meanwhile in South Africa, SARB are expected to cut rates 25bps to 7.75%.  There have been a couple of suggestions we could actually see a 50bps cut but 25bps remains the consensus.   Rates are expected to hit 7% my mid-2025.

The calendar looks full today but I’d say its mostly second-tier data, US philly fed survey possibly the highlight.  Several central bank officials will be speaking through the day again.  UK retail sales will be out in the early hours of tomorrow morning.  They are not expected to make great reading.

I was out last night, went to the theatre to watch ‘The Lehman Trilogy’  which is the story of how Lehman Brothers was built by three brothers from nothing into a sprawling financial institution.  It went into good detail of the history of Lehmans but failed to detail the events that really led up to its demise, save for the fact they made it very clear there were no ‘Lehmans’ left on the board when it collapsed.  A good show, a bit long but cleverly done and overall worth a visit.

Finally, I have just ready the John Prescott has passed away.  Not everyone’s favourite for sure, but he certainly was a man who knew what he stood for and was one of the great characters in politics.

Its another cold one today, I don’t think we’ve made it above zero yet this morning but I prefer this to the heavy rain that is forecast to be with us all day Saturday. 

Have a great day,

-  11.00 CBRT rate announcement

-  13.00 SARB rate announcement

-  13.30 US philly fed survey, initial jobless claims

-  13.45 Feds Hammack speaks

-  14.00 BoEs Mann speaks

-  15.00 US existing home sales

-  15.00 EU consumer confidence

-  15.30 ECBs Lane, Elderson speak

-  17.25 Feds Goolsbee speaks

-  21.40 Feds Barr speaks

-  22.00 AUS manufacturing, services PMI

-  23.30 Japan CPI

-  00.01 UK GfK consumer confidence

-  07.00 UK retail sales

-  07.00 German GDP

Stronger UK inflation make a December rate cut less likely

Good morning

The snow didn’t last long but the temperatures remain low, overnight we hit minus numbers and it’s not going to get much warmer through the day.

A reasonably quiet day again in the FX world, the US dollar had a brief push higher yesterday morning, GBPUSD traded down to 1.2615 and EURUSD to 1.0525, but through the rest of the day the USD gradually weakened and by the London close we were back up at 1.2670 and 1.0580.  GBPEUR closed around 1.1970.  The weaker USD was perhaps helped by Fed’s Schmid who sounded reasonably dovish, saying it was the right time to be cutting rates.

CAD pushed higher in the afternoon after Canadian inflation came out even stronger than the already elevated expectations.  USDCAD moved down from 1.4025 to 1.3975 in a straight line and despite a fleeting recovery it ended around those lows.  11th December is the next BoC rate meeting, some thinking that another 50bps cut could be off the table but I think the BoC may look more closely at employment than inflation for the time being.

Anyone who had been hoping for a Dec rate cut may want to look away now.  UK inflation this morning was firmer than expected which pushed GBP higher.  GBPUSD had been pretty stable overnight around the 1.2685 area traded up to around 1.2715, while also climbing back above 1.2000 against the EUR for the first time this week.  GBPJPY is now up at 197.60 helped by both the UK inflation numbers but also a weak yen, with USDJPY climbing from yesterdays lows around 153.30 to around 155.70.   Ueda speaks early tomorrow morning, he may try to talk yen higher.

Something that could also be helping GBP is the report that UK’s employment numbers may be missing around 1 million people who are in  work, while also overplaying the numbers of workers dropping out of the jobs market.  If this turned out to be correct, it may encourage BoE to keep rates higher for longer.  Quite how they could get numbers so wrong is beyond me. 

A new series of I’m a Celebrity has started.  I’m still not sure if ‘celebrity’ is a fair description but I have heard of some of the contestants without having to look them up.  Anyway, it’s the usual format, they’ll have to eat unpalatable things and do scary tasks but those are getting a little long in the tooth now, there are only so many times we need to see people in a box with snakes and spiders. 

What I think we really need is for the camp to not get along with each other.  They’re all a bit too nice these days.  Anyway, it’s the betting I’m more interested in as the early favourites don’t always do so well. Main favourite for now is McFly band member Danny Jones who seems sickeningly pleasant.  TikToker GK Barry (had to look her up) looks like an early favourite who on the face of it could struggle to go the distance but I’m thinking she could surprise us and one would think she’d have the online support if her 4 million followers all bothered to vote. 

Still, I’m going to struggle to get into IAC as I’m currently working my way through Ted Lasso.  Yes, I know, once again I’m very late to the party, I have to say the series had never really appealed to me, but we got into it quite quickly and I must say it rarely disappoints, save for a rather odd episode in series 2.  

Running a bit late today so I’ll leave it there for now.  As I finish typing GBPUSD has ticked lower again to 1.2675, EURUSD is also lower at 1.0560 which means GBPEUR is still around the 1.2000 area.   

Have a great day, stay warm. 

-  13.00 ECBs Lagarde speaks

-  15.30 BoEs Breeden speaks

-  16.00 Feds Cook speaks

-  16.00 BoEs Ramsden speaks

-  17.15 Feds Bowman speaks

-  18.00 ECBs de Guindos speaks

-  05.10 BoJs Ueda speaks

USD strength abates for now

Good morning

Its snowing!  I know some areas had had it forecast but I don’t think it was expected to come this far south.  Anyway, I awoke to a light covering and rather chunky looking snowflakes still falling.  Nothing to get too excited about for now but as we know it doesn’t take much in this country for everything to stop.

It was a pretty quiet day in the currency world yesterday. GBPUSD traded within a 20 pips range for most of the day, only breaking a little higher to 1.2685 after the London close, EURUSD had a slightly wider range between 1.0535 and 1.0570 but nothing to get excited about, but late USD weakness did see the pair up at 1.0605.  GBP yesterday made new short-term lows vs EUR, slipping to 1.1945 but did recover a little late on, now 1.1970.  GBPUSD is 1.2665 as I type, EURUSD 1.0580.

Lagarde was speaking yesterday, she gave a pretty dismal outlook for Europe, saying the region has fallen behind in terms of tech and is facing strong competition from China.  She made it clear Europe needs to adapt quickly to regain competitiveness, failure to do so will make it difficult for Europeans to enjoy the economic and social lifestyle everyone has becomes accustomed to.  As happens so often, her comments had little impact on the currency markets.

UK PM Starmer met China’s Xi in Brazil, with Xi congratulating Starmer on his economic policies.  Starmer was looking to rebuild a relationship with China but from what I read he mentioned human rights and Chinese officials promptly removed two British journalists from the meeting.  Starmer has also announced a relaunch of UK/India trade talks as he looks to gain favour with other nations.   

While Xi may be pleased with the recent budget, many are not, with farmers protesting in London today and now a group of some 79 retailers have asked for a meeting with Reeves over her decisions that they say will lead to price rises, shop closures and job losses.  At some point Reeves may also have to explain how her CV has changed since her appointment as Chancellor after questions emerged over her role at HBOS.  I remember a time when lying on ones CV was enough to end a career, particularly in the world of finance where lying on such matters must surely make you fail the ‘fit and proper’ criteria.

USDJPY had a wider range than most, from a morning low of 154.30 to an afternoon high of 155.30, but the USD selling into the London close brought it back to 154.65 and overnight it tested 154.00 as Japan’s Kato reiterated that moves in the currency market are being closely monitored.  GBPJPY just around 195.40 as I type, having been up at 196.00 earlier this morning.

ZAR has had a good couple of days, boosted by S&P’s decision to raise the country’s outlook to positive from stable, on reduced political risks.  USDZAR yesterday traded down from an open around 18.20 to a low around 17.96, while GBPZAR hit a low of 22.75 having been as high as 23.25 late last week.  The South African central bank, SARB, are expected to cut rates 25bps to 7.75% on Thursday in a move I’d imagine is reasonably well priced in. 

RBA minutes overnight confirm their desire to keep rates elevated in order to slow inflation that RBA deem as too high.  AUDNZD holds above 1.1000, now around 1.1040 but struggles to break higher, the last two pushes up in early Oct and early Nov both ran out of steam around 1.1085, so for now we’re stuck in the 1.1000-1.1085 range.  AUDUSD currently towards the lower end of recent trading just around 0.6505, while GBPAUD has shifted lower, now 1.9445.  Meanwhile New Zealand are expected to see lower rates at next weeks RBNZ meeting, the question is whether they cut 25bps as seems to be expected, or go larger with a 50bps cut as ANZ are forecasting.

I am worried about the escalation in the Ukraine/Russia conflict.  The possible use by Ukraine of US missiles hitting targets deep in Russia itself is something that many say has been needed for a long time, and I do think the UK and EU nations could follow suit.  But there is a risk that Russia retaliates and I see Denmark, Norway, Finland and now Sweden are sending information to their citizens of how to prepare and cope in the event of war. 

If it wasn’t so serious I would find it amusing that Russia are happy taking arms from China and Iran, and even use troops from North Korea in their invasion of Ukraine, but regard the use of foreign weapons on their soil as an act of war.  Very worrying.  I wonder whether Trump will be able to negotiate peace with his old pal Putin?  Probably not, unless Ukraine are willing to give away land already lost.

EU inflation numbers out this morning rarely move away from expectations, as such I’m thinking they shouldn’t impact the market a great deal.  CAD inflation this afternoon is likely to attract attention given the recent dovish talk, and indeed action, by BoC.  We do seem to have a clear upside barrier in USDCAD at 1.4100, that area has been tested several times last Friday and again yesterday.  After the London close the pair traded down to almost 1.4000, GBPCAD has pulled back to the 1.7750 region.

Early tomorrow morning we’ll have the latest UK inflation numbers.  CPI is expected to show enough strength to bring it above the 2% target to 2.2% from 1.7% last time, there is some hope that core CPI will hold around 3.2%.   Both PPI and RPI are also expected to shift to the upside, there is a risk that stronger inflation readings combined with the potentially inflationary effect of the recent budget will lead to BoE holding rates at 4.75% when we’d really appreciate another 25bps reduction.

Have a great day

-  10.00 EU HICP

-  10.00 BoE MPC Treasury hearings

-  11.00 German Buba monthly report

-  13.30 US building permits, housing starts

-  13.30 CAD CPI

-  18.10 Feds Schmid speaks

-  23.50 Japan trade

-  01.15 PBoC rate announcement

-  07.00 UK CPI, RPI, PPI