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Multi-year lows


Politics continue to unravel 

At the start of last week, the Government's tax U-turn allowed the Pound to recover lost ground from the week before. However, by the middle of the week, the British currency had softened against other currencies as markets digested Prime Minister Liz Truss' speech. The Bank of England stepped in last week to try stabilising markets, but volatility has continued as political developments have unfolded. Political uncertainty looks as if it will be a theme in the coming sessions, which could mean continued Sterling volatility as events unfold. According to YouGov data, Liz Truss is already more unpopular than Boris Johnson ever was, and questions are being raised by the International Monetary Fund on why the UK would release a stimulus package like that of the 'mini-Budget', when the economy is already struggling with inflation at 40-year highs. The UK's Chancellor Kwasi Kwarteng has a lot of explaining to do in coming weeks, which will begin at the IMF's annual meetings that he's flying to Washington for this week. The decision by the UK Treasury to move its fiscal plan announcement to 31st October, the same week as the Bank of England interest rate decision, hasn't created a huge amount of movement, with markets distracted by upcoming influential data out from the US and the IMF/World Bank meetings throughout the week. In the week ahead, highly influential UK labour market data will be released, along with growth stats which could be significant markers for the direction of Sterling value during next week's trading.  


Multi-year lows 

The Euro continues to trade at the mercy of the US Dollar dynamic, with EUR/USD trading at multi-year lows at the $0.97 level during early morning trading. Many believe that the European Central Bank should be acting more aggressively when it comes to interest rate hikes, and some ECB Governing Council members have called for more significant hikes at future meetings following a 75 basis point increase in September. In the week ahead, ECB President Christine Lagarde will be speaking, G20 meetings will be taking place on Wednesday and Thursday, and IMF meetings will be taking place throughout the week.  


Inflation data ahead 

Federal Reserve Chairman Jerome Powell may have a headache this week when the IMF meetings get underway. Powell will likely be under the spotlight with questions around the pace of the Federal Reserve's interest rate hike cycle, and whether a slower path may be of consideration, as the US Dollar's strength continues to dominate markets. It's largely expected that the Fed will increase interest rates by another 75 basis points at its next meeting in its bid to tame inflation. The Federal Reserve will release its meeting minutes from the September gathering this week. Additionally, US Retail Sales, and highly influential inflation data will be released, which will be watched very closely by markets. 



The Pound softened against the New Zealand Dollar last week, but managed to register some gains against the Australian Dollar, mainly due to a surprise from the Reserve Bank of Australia. The RBA opted to hike interest rates as forecast last week, but surprised markets with a smaller-than-expected increase. Policymakers opted to hike interest rates from 2.35% to 2.6%, while markets had expected a more significant increase to 2.85%. Economists have suggested that with the current domestic backdrop, the bank may not make larger hikes in the future. RBA Governor Philip Lowe stated: 'Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments. Consumer confidence has also fallen, and housing prices are declining after the earlier large increases.' Also last week, the Reserve Bank of New Zealand also hiked interest rates, but fell in line with economist expectations, hiking from 3.0% to 3.5%. This is the fifth consecutive half-point interest rate increase, and in contrast to the RBA, signalled more were to come, saying: 'A lower New Zealand Dollar, if sustained, poses further upside risk to inflation over the forecast horizon.' 

In the week ahead, influential Australian services data for September will be released; August's reading indicated expansion. Markets are largely anticipating a 50 basis point hike from the Reserve Bank of New Zealand on the 22nd of October, which could be something that plays into NZD movement in the coming weeks. 


Oil supports the Loonie 

Last week, Canadian labour market data printed better-than-forecast stats. The Unemployment Rate figure dropped from 5.4% to 5.2% in September, while the Employment Change reading showed 21.1K people had entered the workforce. The US Dollar softened slightly against the Loonie, after three weeks of gains, as oil prices increased, supporting the Canadian currency. The Pound also softened against the Canadian Dollar. It's a quiet week in Canada, with no significant data due for release. This means the Canadian Dollar will be more sensitive to geopolitical developments and oil price changes which could determine its movement. 

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