On October 25th, the Pound reached a five-week high versus the US Dollar as the new Prime Minister, Rishi Sunak, was confirmed. In his first speech, Sunak emphasised that his priorities were economic stability and confidence. BlackRock, the world's largest asset manager, said: 'Perceptions of fiscal credibility had improved, though not fully.' However, the UK budget has been postponed until November 17th, with Chancellor Jeremy Hunt promising to make some 'politically embarrassing' decisions if it means a good outcome for the economy. This week, the Bank of England could raise rates by 75 basis points or more on November 3rd in an effort to tame the UK's double-digit inflation.
Adjusting the language
On October 27th, the European Central Bank (ECB) announced a jumbo interest rate hike of 75 basis points—the fastest pace on record and taking rates to their highest since 2009—to combat record-high inflation. However, the bank adjusted its language around making hikes at 'several' further meetings. ECB Chief Christine Lagarde said: 'We will have further rate increases in the future. So it might well be several meetings'. As a result, the Euro briefly fell below parity with the US Dollar due to fears of inflation remaining higher for a longer period of time. The Governing Council is expected to continue monitoring monetary policy in a bid to return inflation to its 2% target.
Murmurs in markets
US Dollar strength made a comeback on Monday, ahead of the Federal Reserve's monetary policy meeting. This week, policymakers will announce their latest interest rate decision, with markets anticipating a fourth consecutive 75 basis point rate hike to curb high inflation. However, murmurings of a Fed pivot are doing the rounds in markets, with some strategists suggesting that recent economic data calls for a pause in monetary tightening. Highly influential US Non-Farm Payrolls and Unemployment Rate data will also be released on November 4th, which could influence the way the US Dollar trades.
AUD and NZD
32-year high inflation
Sterling registered gains against both the Australian and New Zealand Dollars last week. Meanwhile, New Zealand inflation reached a 32-year high at 7.3% in Q3 as housing and household utilities prices increased, alongside rises in construction and rentals. Another contributor was the high prices of fuel. Reserve Bank of New Zealand Governor, Adrian Orr, has warned that 'returning to low inflation will, in the near term, constrain employment growth and lead to a rise in unemployment.'
Tomorrow, the Reserve Bank of Australia will announce its latest interest rate decision, with expectations for a hike from 2.6% to 2.85%. Later in the week, the RBA Statement on Monetary Policy will be released. Meanwhile, the Reserve Bank of New Zealand will this week release its Financial Stability Report, as well as highly influential labour market data. An RBNZ press conference will also take place.
The slowing of hikes
The Pound climbed against the Canadian Dollar in last week's trading. On Wednesday, October 26th, Canada's central bank continued to raise its benchmark interest rate by 50 basis points to 3.75%, falling below the 4.0% forecast. After lowering its rate to nearly zero during the pandemic, the Bank of Canada has increased its interest levels six times since March. Although the hike will likely help manage the cost of living in the long term, consumers and businesses are starting to feel the impact of high borrowing costs and the pain of inflation. Some industry experts suggest that the bank's decision to slow the pace of its rate increases means we could be approaching the end of the hiking cycle, and the days of the larger 75 basis point increases from the BoC could now be behind us.
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