USD strength continues; BoC to cut rates 50bps today

Good morning

It was another quiet day in the currency markets yesterday, general USD strength was the main theme which saw GBPUSD trade down to 1.2945 at one point, EURUSD holding just above 1.0800.  GBPEUR traded to 1.1980 for a while but regained 1.2000 into the London close.

This morning the US dollar remains firm, GBPUSD at 1.2965, while EURUSD has finally slipped below 1.0800, reaching 1.0780 so far, within 10 pips or so of the August lows.  GBPEUR currently 1.2030.  USDJPY has benefitted from the USD strength, trading up to 152.50 this morning, the highest level since late July.  GBPJPY has been dragged up to 197.80.  Not heard much from Japanese officials but no doubt we’ll soon get more of the ‘we are watching yen levels closely’. 

USDCAD has been pretty stable heading into the BoC rate announcement today.  A 50bps cut is widely expected which would take rates to 3.75%, I’d still expect some CAD weakness even though it must be mostly priced in, but the key is likely to be the press conference where we will be hoping to get clues as to the rate path going forward.  I mentioned CADJPY yesterday, at the time it was 109.20, the pair now trades at 110.20, driven by yen weakness rather than CAD. 

I’ve been looking for any value in overnight option plays just in case we do see a bit of volatility today.  Upside USDCAD perhaps, the 1.3825 overnight USDCAD call costs 25 cad pips, or for some two way interest you could have the overnight 1.3800/1.3850 strangle which costs around 30 cad pips.

I see the Trump team has filed a complaint accusing the UK’s Labour party of foreign interference in the election.  He sees the Labour party as ‘far-left’ and refers to an online post from Labour’s head of operations which said nearly 100 members would go to the US to volunteer in support of Harris.  This does not bode well for relations between US and UK should Trump be elected.  And why on earth would Labour members go and get involved in the US election?  Is this normal?

There is a BRICS summit in Kazan, a Russian city some 900km from Moscow.  China’s Xi, India PM Modi and Iran President Pezeshkian will all be present, along with others from twenty or so nations.  The summit is clever, it shows the West that despite sanctions Russia has many allies and could challenge the G7 if they really got their act together. 

Whether they can actually agree on anything remains to be seen, not all members are completely anti-West and some, such as India and China, don’t get on particularly well.  I have mentioned before the ongoing border dispute in the Arunachal Pradesh region which has seen deaths of both Indian and Chinese soldiers in the past.  However, they do seem to have reached some sort of agreement regarding the border issues ahead of their meeting.  The fact that all these nations are getting together is a clear sign that Russia can exist and does have some ‘friends’ despite Western sanctions.

Moldova might not be Putin’s favourite place, as they appear to have voted for EU membership with the tiniest of margins.  Well, the vote isn’t to actually join the EU, but to change the constitution to allow it.  There will be another referendum at some point.  Plenty of talk of people being paid to vote and Putin has made it clear he believes the country should be linked to Russia and the integration process of former Soviet territory.  Mildly worrying, particularly if Ukraine was to fall into Russian control.

In the Champions League, both Arsenal and Aston Villa won their matches last night.  Real Madrid came back from 2-0 down to beat Borussia Dortmund 5-2.  Man City and Liverpool play this evening, but Barcelona v Bayern Munich could be the one to watch.   Remember though, the real action takes place tomorrow with Spurs playing Dutch side AZ Alkmaar in the Europa League.

It’s another day full of central bank speakers but I still don’t expect anything out of line from them, just more of the same.  Exception could be RBNZ Gov Orr who speaks after to London close, I’m wondering if he’ll make any reference to the forecast of a 50bps rate cut in November, and the potential for perhaps even a 75bps cut. 

That’s about all for now, have a great day

-  14.00 BoEs Breeden speaks

-  14.00 Feds Bowman speaks

-  14.45 BoC rate announcement

-  15.00 US existing home sales

-  15.00 EU consumer confidence

-  15.00 ECBs Lagarde, Lane speak

-  15.30 BoC press conference

-  15.30 ECBs Cipollone speaks

-  17.00 Feds Barkin speaks

-  18.00 RBNZs Orr speaks

-  19.00 Fed beige book

-  21.30 BoEs Bailey speaks

-  23.00 AUS manufacturing, services PMI

Currency markets calm, will any of today's central bank officials offer anything new?

Good morning

Currency markets have been reasonably stable, we did see a bit of USD strength yesterday afternoon which took GBPUSD to its recent lows around 1.2975, an area that has provided support for a week or so and once again we have pushed back up from that area to the 1.3000 region.  EURUSD also dipped a little, touching 1.0810, again the low from last week, but has crept higher a touch higher to 1.0825 as I type.  GBPEUR is 1.2010, still supported by ECB/BE policy divergence.

The stronger USD was perhaps due to comments from Fed officials who, although still see the case for further easing, generally see a slower pace of rate cuts going forward.  Logan, Kashkari, Schmid and Daly all seemed to share this view, the latter expressing more concern about the US labour market.

USDCAD remains towards the top of the recent ranges ahead of BoC’s rate meeting tomorrow. USDCAD is now 1.3825 having tested up to 1.3850 yesterday, GBPCAD is 1.7980 while there is some focus on CADJPY which, aside from a blip in early October, is pretty much at the highs since late July.  Now 109.20, this area has been tested several times since July and has generally held.  A bit of a battle of two weak currencies, well worth watching.  A 50bps cut tomorrow could send CAD lower, particularly if accompanied by some dovish commentary as well.

In sport, I watched a bit of Notts Forest v Crystal Palace yesterday, I have a bit of a soft spot for both teams but I have to say it was a pretty dismal affair lacking in any real quality.  Forest took the win which puts them level with Spurs in the league table.  This evening brings Champions League fixtures, Arsenal and Aston Villa both playing tonight. 

In other football news, I see that Spains’s La Liga are looking to play the December league fixture between Barcelona and Atletico Madrid in Miami.  We’ve had NFL and baseball over here, it is only a matter of time before we get  Premier League fixture played elsewhere.

In perhaps more important news, men’s Conker world champion, 82 year old David Jakins has been cleared of cheating in the finals with his steel conker.  We can all sleep peacefully at night now!

Todays calendar is packed with central bank speakers from ECB, Fed and BoE.  I’d expect the Fed officials to continue to look for cuts albeit at a slower pace and ECB officials to continue looking for lower rates. BoE might be more tricky, we had Bailey recently talk of more aggressive cuts and the weaker inflation data last week seemed to support that, so will be interesting to see whether we get similar comments today.

Have a great day

-  14.05 ECBs Knot speaks

-  14.15 ECBs Nagel speaks

-  14.15 BoEs Greene speaks

-  14.25 BoEs Bailey speaks

-  14.45 ECBs Holzman speaks

-  15.00 Feds Harker speaks

-  15.30 ECBs Lagarde speaks

-  16.00 ECBs Lane speaks

-  18.00 ECBs Villeroy speaks

-  19.00 ECbs Rehn speaks

-  20.15 ECBS Lagarde speaks

-  20.15 BoEs Breeden speaks

-  21.00 ECBs Lane speaks

Calm start to the week, central bank officials take up most of the calendar

Good morning

Welcome back, I hope you had a terrific weekend.  Spurs managed to look good this weekend, Marks Leeds beat titles rivals Sheffield Utd, but GB lost the Americas Cup to New Zealand.  Weather was mixed, if you were out at the right time it was sunny and felt positively warm, but at the wrong time you’d have got drenched.  I managed to mow the lawn, it does look good after its freshly cut although its that time of year when you turn around and a new layer of leaves falls just as you’ve finished. 

Scotland had a bit of a storm but I do love the way the press sensationalise things, particularly after we’ve seen the US hit by a couple of hurricanes recently.  The BBC headline says ‘clean-up to begin after high winds’, while showing just a photo of a trampoline straddling a three foot fence.  OK, I’m sure it was worse than that, but let’s not get carried away.

After the initial euphoria stemming from strong UK retail sales on Friday, GBP has called a little, with GBPUSD now 1.3025 and GBPEUR 1.2000, some 70 and 55 pips or so off their respective highs.  EURUSD is currently 1.0850 as Moldova take to the polls to vote whether or not to join the EU.  It is a close run thing, with less than 0.2% in it after 98% of the votes counted.  The current Moldovan president has blamed foreign interference on the narrow result, as the country decides whetehr to align more with the EU or maintain close ties with Moscow.

Elsewhere, you’d have thought comments from RBA DepGov Hauser who said Aussie rates won’t fall as early or as far as other central banks, would support the AUD.  However GBPAUD traded up to 1.9500 this morning, AUDUSD slipped back below 0.6700.  We did have a China rate cut this morning, it had been expected but I’m wondering whether some thought we might see a larger cut, and perhaps AUD has shared some of the disappointment.

It was a busy week last week with plenty of UK data, the ECB rate meeting and various inflation reports.  This week is certainly quieter, the first half of the week is mainly taken up with central bank officials speaking, plenty of Fed officials on the calendar ahead of their blackout period that starts at the end of this week.  We have the BoC rate announcement Wednesday at which a 50bps cut is expected.  The latter part of the week sees a host of EU, UK and US PMI releases,  

Next week we have the UK budget.  Many people I speak to have expressed concern as to what may be announced, we know it’ll have tax raises and I fear these could be harsher than we hope, but fortunately I don’t think we’ll see a repeat of the disastrous Truss/Kwarteng debacle a couple of years ago. Still, I find it difficult to see how GBP can really push higher ahead of next week’s announcement.

Gold prices hit new record highs of $2,733, led by ongoing geopolitical risks and, I presume, some renewed buying out of China.  Israel still haven’t hit back at Iran but that doesn’t mean they won’t, meanwhile they continue to hit Hamas and Hezbollah targets.

That’s about all for today, not the most thrilling of reads I know but there really isn’t much for me to get my teeth into. Have a great day, I’m out again visiting clients and don’t think I’ll be missing much in the office other than admin.

-  13.55 Feds Logan speaks

-  18.00 Feds Kashkari speaks

-  22.05 Feds Schmid speaks

-  22.45 NZ trade balance

-  23.40 Feds Daly speaks