Market Report - 21/11/2023
Hunt to set Autumn budget ; City holds it’s breath
It’s Autumn Statement week – this really is a blockbuster event in the FX Market… last year’s release was on 23rd September 2022 and released by Kwasi Kwarteng (the Chancellor at the time) as part of Liz Truss’ short-lived government. Their budget caused shockwaves and saw the Pound fall 17% lower which ultimately resulted in a Liz Truss resignation and Rishi Sunak to be appointed as PM.
This years’ budget will again have eyes firmly peeled to see whats announced. Rishi Sunak has spoken in the lead up, claiming the government is looking to slash taxes “carefully and sustainably” however what that looks like is anyone’s guess… Sunak has also promised to “reduce debt, cut tax and reward hard work, build domestic sustainable energy, back British business and deliver world class education.” Goldman Sachs have estimated the Chancellor has £25b of budget and could announce tax cuts on Wednesday, although Rishi’s comments suggest this may be on hold until next year. Data out this morning backs this up, with tax receipts rising to £24m this fiscal year, so there is certainly room for cuts to taxation.
In other news, Javier Milei has been appointed President of Argentina, nicknamed ‘El Loco’ which roughly translates to ‘The Madman’ lists moving Argentina to the US Dollar as one of his main policies. Historically, we’ve seen significant Dollar strength when a country replaces their currency with the US Dollar, so this could be yet another blockbuster event in the future.
EUR
Economists at ING Bank have a mildly bullish outlook on GBP/EUR going into 2024, but are suggesting 1.11 is on the cards (which has also been forecast by the International Monetary Fund, previously chaired by Christina Lagarde) - Volatility on this currency pair is traditionally a lot lower, with implied volatility currently sitting at just 5.7%.
This week is an extremely quiet week on data coming out of the Eurozone, however on Thursday, we have flash PMI figures coming out of the ECB, with more from Germany on Friday – this gives us a good insight on the state of play in the mainland’s manufacturing sector – any signs of weakness there and the Pound could capitilise, having recovered from lows of 1.1406 to currently trade around 1.1440.
Aside from that, on Friday we have President Lagarde speaking at 9am – the likelihood is that we’ll get some insight into the ECB’s monetary policy going forward, so anything dovish/hawkish will likely move markets in some regard.
USD
The US Dollar is kicking off this festive week on the backfoot as US traders look for the best Black Friday deals ahead of the turkey dinner on Thursday. The US Dollar Index has broken some substantial technical indicators that hold big relevance as support or resistance. With a very light economic calendar this week, not many elements can be pushed forward for a turnaround in the current downturn for the Dollar – in layman’s terms, this means we will likely see ongoing Dollar weakness, so it’ll give the Pound and the Euro an opportunity to have a push towards key resistance levels (1.2560 & 1.0944), especially with thin liquidity expected on Thursday (Thanks giving).
On Tuesday traders will brace for the FOMC Fed Meeting Minutes from their latest rate decision. Before Thursday’s national holiday, the University of Michigan will print its final November data and the week will be closed with the flash S&P Global Purchase Managers Index (PMI) numbers with only meeting minutes expected to cause any market ripples.
Whilst the dust settles on the penultimate US Bank holiday of the year, we also have Flash PMI figures from the US on Friday, which could be an opportunity for the Dollar to claw back; or lose anything gained on Thursday.
GBP
As highlighted above, the key risk event this week is the autumn statement due out on Wednesday, with Rishi Sunak already hinting at short and long term plans – remember the budget could also be key as the Tories look at winning back voters, with them significantly behind labour in the latest polls.
Aside from that Governor Bailey has a speech tomorrow, with the topic likely to be his ongoing wrestle for control of inflation – it looks as though we have hit Rishi Sunak’s promise of 4.6% by 2024, however it’s important to note this is still some way off the Bank Of England’s inflationary target of 2%.
On Thursday, it seems a common theme here, but we also have flash PMI’s from the UK, however this could be a drop in the ocean when it comes to extensive market volatility because the main export of the UK is services.