‘Prepared to take the necessary decisions’
UK house prices have noted a fall of 0.4% in October, as mortgage rates and a cost of living crisis exist simultaneously; two-year fixed mortgage rates currency sit at 6.45%. The Bank of England announced last week that it would increase rates from 2.25% to 3.00%. Despite the ‘jumbo’ hike, the Pound plummeted more than 3.5% against the US Dollar, as some officials voted for smaller increases, and policymakers warned that rates would not rise as much as markets predicted in the future because forecasts suggest a prolonged recession is on the cards. The Pound has managed to reverse some of its losses in today's trading, as US Dollar weakness kicks in. Bank of England policymakers are scheduled to speak this week, and any comments regarding monetary policy could impact the way Sterling trades. Growth data will also be released.
‘Prepared to take the necessary decisions’
Despite rapid increases in interest rates by the European Central Bank, several Eurozone countries are recording double-digit price increases in consumer products. With the previous month's inflation sitting at around 9.9%, reports surpassed forecasts of 10.2%, with consumer prices reaching 10.7% in October, against a backdrop of an economic slowdown. ECB Chief Christine Lagarde said in a lecture at the central bank of Estonia that ‘we will not let high inflation become entrenched’ and that central bankers must be ‘prepared to take the necessary decisions’ no matter how difficult. In the week ahead, Eurozone retail data will be released, as well as the central bank’s Economic Bulletin, and Economic forecasts from the European Union.
US midterms ahead
Last week, the Federal Reserve raised interest rates by another 75 basis points in an effort to fight 40-year high inflation, marking its sixth interest rate hike since March. Meanwhile, US employment data has indicated that hiring has remained strong. Non-Farm Payroll reports surpassed expectations of 200K instead of coming in at 261K in October. The Dollar Index has been trading lower ahead of US political events this week. The US midterms will take place on Tuesday, and the Democrats hold a slim majority in Congress, but the Republican Party may find themselves in a good position for the 2024 campaign, given the turbulent economic backdrop, if they can flip some key swing states in the crucial round of voting. Also this week, Federal Reserve representatives will speak, US inflation data will be out, and sentiment stats will close the week.
AUD and NZD
Slow and steady vs heavy hiking
Last week, the Pound softened against the New Zealand and Australian Dollars. New Zealand unemployment rates remained nearly unchanged at a near-record low of 3.3% as wages rose last week. Finance Minister Grant Robertson said: ‘This is something worth celebrating and shows our economic plan is working for New Zealanders despite the challenging global environment.’ Despite the Reserve Bank of New Zealand hiking interest rates by 50 basis points in the past five meetings, economists suggest further hikes may be needed, with some suggesting a 75 basis point hike could be warranted. Adrian Orr, the Governor of RBNZ mentions that ‘it is important that financial institutions take a long-term view when supporting customers and allocating credit to the wider economy’. Meanwhile, the Reserve Bank of Australia opted to take a slow and steady approach when choosing to hike interest rates from 2.6% to 2.85% last week—a nine-year peak and the seventh hike in as many months. Another 25 basis point hike is expected before the end of the year, but a larger 50 basis point increase may not be ruled out if data surprises to the upside. In the week ahead, medium-tier stats will be released, such as Australian card spending and inflation expectations.
Smashing the job forecasts
Against the Canadian Dollar, the Pound slipped lower during last week’s trading sessions. Last week, the Canadian Dollar strengthened by the most substantial level in 12 years against the US Dollar as oil prices increased and Canadian jobs data buoyed hopes for another larger interest rate increase by the Bank of Canada. The Canadian economy added 108,300 jobs in October, surpassing forecasts of 10,000 new jobs. Markets are predicting a 65% chance that the Bank of Canada will raise interest rates by 50 basis points at its next policy announcement on December 7. In other news, a spending package revealed in a fiscal update last week has caused concern—Canada announced its plan to spend an extra $6.1 billion in the next five months; however, this may contradict efforts made to curb inflation. It’s a quiet week for Canadian data, but BoC Governor Tiff Macklem will make a speech which could influence the Loonie exchange rate.
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