Let's begin with the Autumn Budget. The net result for markets was that the Budget boosted borrowing. UK bond yields spikes causing the market to reassess the likelihood of a 25bps rate cut in December, with the odds dropping from 70% to 40%.
Markets are now projecting only 1% worth of rate cuts over the next 12 months, versus 1.25% pre-Budget. GBP was volatile throughout the day - it started off lower, then as yields went up it followed suit only to dip again at the end of the day and finish lower across the boards, as can be seen in the market rates data below.
EUR got a boost today after Q3 GDP and German CPI numbers came in higher than expected. As a result, the odds of a 50bps rate cut in December dropped from 42% to 22%.
We've got mixed data stateside. Despite better-than-expected ADP payrolls, gains were tempered by Q3 GDP coming in marginally lower at 2.8% and core PCE slightly higher at 2.2%. USD finished the day lower across the board.
*Daily move - against G10 rates at 7:30am, 31.10.24
** Indicative rates - interbank rates at 7:30am, 31.10.24
So far this morning, GBP is attempting to claw back some of the losses experienced yesterday as markets continue to digest yesterday’s Autumn Budget, tracking yields on Gilts.
Whilst market pricing reduced the chances of a rate cut in December, it remains to be seen if the Bank of England will be swayed by the budget (keeping interest rates higher) or whether they will continue to focus on domestic data to determine their rate easing policy. If the latter suggests that in the short-term inflation is coming down quick enough, the BoE may well have to act to cut rates, going against market pricing – this remains a risk for GBP.
Two sets of inflation numbers are in focus today: EU CPI and US core PCE.
EU CPI numbers are out this morning and if they echo the unexpected positive trend seen in Germany's data, we could see further gains for EUR.
US core PCE (the Federal Reserve's preferred metric of inflation) is due in the afternoon and a stronger than expected number would continue to support USD.
JPY is off to a promising start today after Bank of Japan (BoJ) Governor Ueda outlined plans to continue hiking interest rates if their economic forecasts align with reality. The BoJ held rates in today's meeting.
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