UK and US each cut rates to 4.75% but expect US rates to fall at a faster pace from here

Good morning

Apologies if this arrives late, had some internet issues this morning.

Yesterday we had both UK and US rate announcements.  BoE did indeed cut rates 25bps to 4.75% in an 8-1 vote, only Mann dissented in the end.  If one word summed up the BoE it would be ‘gradual’, with Bailey making it clear this would be the best way to proceed given the inflation outlook and the post-budget uncertainty, although lower inflation and lower rates are still expected.  Many looking for quarterly rate moves from BoE from now on.  GBP did find support over the announcement, pushing higher against most majors.  GBPUSD traded up to 1.3000 through the day,  GBPEUR reached 1.2025 although GBP gains were outweighed by further gains in AUD which took GBPAUD down to 1.9450.

After the London close, the FOMC did cut rates 25bps as had been widely expected, their rates now also 4.75%.  The move was priced in to such an extent that we say little movement initially, Powell spoke but didn’t really offer anything new, confirming the Fed remain focussed on their dual mandate of inflation and jobs.  He did say that the Fed were on path to neutral rates.  The market still looks for a rate cut in December, particularly if November jobs data is on the weaker side, indeed a Dec cut could be 50bps if the data warrants it.  We also have two US CPI releases before that meeting, the first coming just next week. Powell did say the election result would have no short-term effect on policy and made it clear that he would not leave even if asked by Trump.

Since the Fed announcement we’ve seen a little USD upside, GBPUSD now 1.2960, EURUSD 1.0780 and therefore GBPEUR still around 1.2020. uk’S Telegraph reports BoE as saying that Reeves budget, with higher public spending and higher cost of employment can only serve to push up prices.  The market seems to be overlooking the recent German government implosion, with Scholz under pressure to bring forward the confidence vote from January to next week.   USDJPY is actually lower at 152.55, some 200 pips down from yesterdays high. 

So, after a couple of weeks with plenty of event risk, the reality is that we’ve had a range in GBPUSD of 1.2850-1.3050 for almost three weeks and we are now bang in the middle of those two extremes as I type.  I’d warned we may see some volatility, indeed we have had some sharp swings, but if we’d gone away for a couple of weeks and returned today we wouldn’t notice much in the way of change at all.

CAD unemployment is a pretty key release today given the BoC’s policy path has been closely aligned with labour market weakness recently.  A weak set of numbers today will only serve to cement the idea that we’ll see further cuts from BoC. 

In sport, a disappointing night for Spurs, losing 3-2 to Galatasary, but other English clubs performed better, Man Utd overcame PAOK 2-0, while Chelsea just about scraped past Noah with an 8-0 victory.  Chelsea are firm favourites to win the competition.  Spurs are back in action this Sunday against Ipswich, but the highlight of the weekend matches must surely be Chelsea v Arsenal. 

In rugby, Ireland take on the All-Blacks this evening while tomorrow afternoon England will be hoping for a return to winning form in their match against Australia. 

Have a great weekend as and when it comes.  It looks like this spell of dry weather will continue, which means I’ll be back outside collecting yet another carpet of leaves that has fallen but there are still plenty more left on the trees still to come down.  Oh joy!

-  10.45 ECBs Cipollone speaks

-  12.15 BoEs Pill speaks

-  13.30 CAD unemployment

-  15.00 US Michigan sentiment survey

-  17.00 Feds Bowman speaks

-  20.30 Feds Musalem speaks

Reversal in USD as US stocks push higher. BoE and FOMC rate announcements today

Good morning

So Trump is the next US President, the US dollar pushed higher yesterday but actually by the close it had backed off and this morning we’ve seen further USD weakness.  GBPUSD reached 1.2835 yesterday but hit 1.2945 just after the London open, EURUSD hit 1.0685 yesterday and managed to touch 1.0770, both pairs currently just 10 pips or so off those highs.  GBPEUR at 1.2015 having been as high as 1.2035 overnight.

Must give US equities a mention as well.  They posted strong gains yesterday, S&P500 was up over 2.5%, Nasdaq up almost 3% and DowJones up over 3.5%.  Impressive moves that I’m sure Trump will love to see, we’ll certainly hear abuot that in days to come.

While GBP has performed reasonably well against USD and EUR, it has dropped against other currencies such as AUD and NZD, now 1.9485 and 2.1545, down from highs this week of 1.9770 and 2.1770 respectively.   AUD strength has come despite talk of Trump introducing large trade tariffs on China, talk of some up to 60%.  China President Xi has said he hopes for US/China cooperation from which they can both benefit. China stocks were up 2.5-3% overnight, something of a surprise given the tariff talk.  Some mention of possible further stimulus looks partly responsible for higher equity prices.

German coalition government is on the brink of collapse as Chancellor Scholz sacks his finance minister over disagreements on spending and economic reforms.  There will be a confidence vote in mid-Jan.  A defeat would mean elections in March sometime.  Euro unmoved news which I have to say is something of a surprise. 

USDJPY hit highs around 154.70 overnight, now back to 154.00 but the yen weakness has certainly  caught the eye of Japanese officials, with Mimura saying the moves are one-sided and drastic and he is watching with a sense of urgency.  He adds that they are ready to take appropriate action, possibly the strongest words we’ve heard on the subject for some time and certainly a step nearer real intervention.  Yen weakness is coming despite ongoing talks of a rate rise as early as December.

Gold is down around US$2,650, over $100 off the highs which many are talking about as an opportunity to get long.  UBS have mentioned that renewed buying interest is starting to emerge. 

UK BoE rate announcement today, a 25bps is widely expected and priced in.  The vote will be of interest, its forecast to be 8-1 with Mann still looking for no move but there are questions as to whether other members will also call for no change.  A further cut in December had been expected but those odds have dropped since the budget, the market looking more at quarterly moves by BoE.  If more than a couple of members dissent, we can likely take a December cut off the table.  Rates higher for long here I think.

FOMC rate announcement later today, a 25bps cut is also priced in, I guess the key question here is to what extent Trump tries to get involved in Fed policy and indeed whether he replaces Powell with his own selection.   As with BoE, with a cut almost fully priced in, the attention is more on any forward guidance as to speed and scale of further rate cuts.  I think both will talk of incoming data but I’d expect BoE to be the more cautious of the two when it comes to further rate cut talk.

Both Arsenal and Aston Villa lost in the Champions League matches yesterday, meaning Liverpool were the nly successful English team this week.  Now attention of course turns to Spurs who look to continue their 100% record in the Europa League this evening against Galatasaray, a very hostile place to go and certainly not an easy match.  Spurs will need to be on top form.  Man Utd have had three draws in Europe so far, they will be looking for a win against PAOK who have so far managed just one point in the competition. 

Meanwhile England’s cricket team lost the deciding ODI to West Indies who chased down the England total of 264 with seven overs and eight wickets to spare.  Not as bad as it could have been either, England had been 24-4 at one stage so their total was pretty decent all things considered.

Have a great day

-  08.10 ECBs Schnabel speaks

-  10.00 EU retail sales

-  12.00 BoE rate announcement

-  12.30 BoE press conference

-  13.30 US initial jobless claims

-  13.30 ECBs Lane, Elderson speaks

-  19.00 FOMC rate announcement

-  19.30 FOMC press conference

USD up as Trump victory all but assured

Good morning

It was a fairly slow day in the markets yesterday up to the US close.  GBPUSD traded broadly within a 1.2975 1.3015 range but did touch 1.3020 briefly at one stage.  A strong US ISM PMI release led to a brief bout of afternoon USD buying before we reverted once again to USD selling into the London close.   GBPUSD finished at 1.3015, EURUSD was higher as well, reaching 1.0920 which put GBPEUR at 1.1920.

BoC minutes came and went, still on the dovish side and nothing to expect there will be a change to that outlook any time soon.  Inflation is expected to continue to decline and although the board considered a 25bps cut, there was stronger agreement that 50bps was more appropriate.  USDCAD slipped on that late USD selling, reaching 1.3820 into the NY close. 

NZ unemployment rate overnight was a slightly mixed bag, with the negative change in employment greater than expected, but the unemployment rate not quite as high as feared, coming in at 4.8%.  NZD actually pushed higher on the release but the fact is the unemployment rate has increased and we’re still looking for at least a 50bps cut at the RBNZs meeting later this month, with some suggestions we could see a 75bps cut. 

Of course, whatever happened yesterday is pretty irrelevant given the US election.  Probably should have started with this.  Trump looks like he’s won, only the second President to win two non-consecutive terms I’m told.  It’s not officially over but seems as good as finished.  Now we have to put up with some of his pretty terrible ad-libbed speeches and goodness knows what the US, and indeed the world, have in store. 

USD is higher, GBPUSD is now 1.2870 having seen a low around 1.2850, EUR has suffered to a greater degree, reaching almost 1.0700 at one stage, now 1.0745.  GBPEUR has traded back up to 1.2000, now 15 pips or so lower but well off the recent lows.  USDJPY is 154.05 as I type.  USDCAD is up at 1.3925.  AUD has suffered, I presume on the notion that Trump ‘s victory could impact China, AUDNZD has been as low as 1.1000, now 1.1035. 

Trump is already talking of tariffs, Reuters has reported that UK could be one country hit by such tariffs.  I thought we had a special relationship?  Mind you, Trump doesn’t like Labour much after he complained Labour members were helping out Harris in her election campaign.  Starmer will have some work to do to regain favour for the UK. 

Quite what Trump’s victory could mean for global security is up for debate.  We knows he wants other countries to contribute more to NATO.  I’d imagine he’ll want to broker a peace deal between Ukraine and Russia, he’d love a legacy like that, but I reckon he’d want Ukraine to agree to giving up huge swathes of land along with a commitment they will never join NATO at least.  Ukraine might not go for that, which in turn could impact US/EU relations.  Not sure what his opinion on Israel/Gaza is but again I’d imagine he’d love to be the guy who secured peace in the region.  Can’t see it myself.

In Liverpool had a convincing win in Europe last night but Man City’s disappointing run of form continues, beaten heavily by Sporting CP, the manager of whom will soon be taking over at Man Utd.   Today sees Arsenal in action at Inter Milan and Aston Villa away to Club Brugge.  Mark’s Leeds Utd travel to Millwall which could put Leeds top on goal difference if they win and Sunderland, currently top of the Championship, lose to Preston NE.    Meanwhile England’s cricket team take on West Indies in the third ODI this evening.

Tomorrow brings both the US and UK rate announcements to add to the volatility.  Until then we have a limited calendar today but of course we’ll probably get the final US election results that confirms Trump as President.      

-  09.00 EU composite PMI, PPI

-  14.00 ECBs Lagarde speaks

-  14.30 ECBs de Guindos speaks

-  15.00 CAD Ivey PMI

-  15.00 ECBs Nagel speaks

-  00.30 AUS trade balance

-  03.00 China trade balance