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UK households may collectively need up to £65bn extra in government support to offset the forthcoming rise in energy bills this winter. That would reduce the risk of a deep recession but would lead to extra Bank of England rate hikes. Markets are right to be thinking about more tightening  even if investor expectations are wildly overestimating its scale Demands for more government help with energy bills are rising UK markets now expect Bank Rate to exceed 4% next year Even by the standards of 2022, it’s been a crazy week in sterling interest rate markets. Swap rates now suggest that the Bank of England will need to hike rates as high as 4.2% (from 1.75% currently). Not only that, it implies the Bank will need to take rates even higher than the US Federal Reserve; it's the first time investors have taken that view since early this year. This trend has undoubtedly been exaggerated by very poor liquidity which means it's hard to gauge exactly how realistic investors think a 4%+ Bank Rate really is. Nevertheless, we think some of this recent reappraisal can be traced back to the eyewatering surge in gas prices and increased focus on how the government may be forced to react. The chain of logic goes something like this: higher energy costs increase the chances of a big support package from the government. And given it will hit households hard right across the income spectrum, blanket support measures (in addition to targeted payments to those on low incomes) may well be required. That, coupled with possible tax cuts depending on which candidate becomes Prime Minister in September, would materially reduce the risk of a deep economic downturn. But the Bank of England would also view it as inflationary, and may well be forced to increase interest rates even further in the autumn. Markets expect the Bank of England to hike beyond 4% next year Source: Refinitiv, ING, Macrobond   We tend to agree with this assessment – even if the scale of the rate hikes required will probably fall well short of what markets expect. We think a 50bp hike in September, coupled with another 25-50bp in November looks more likely at this stage. Let's break it down in more detail: So far, the government has announced £37bn worth of support, through a combination of direct payments to low-income households, coupled with a £400 discount for all households on their energy bills from October. When that support was announced in late May, energy bills were expected to peak at a little under £3000 in the autumn. Using that figure, a quick back-of-the-envelope calculation suggests that households would have paid roughly £65bn in aggregate on their energy bills in the period between October 2022-October 2023. For context that compares to roughly £30bn in the fiscal year 2020-21, which came before energy prices began increasing. In other words, the support measures announced to date looked, at the time anyway, like they would go some way to offsetting the energy bill increases coming down the track. Gas prices have reached dizzying levels Source: Macrobond, ING Consumers may need up to £65bn extra in government support Fast forward a couple of months, and the picture looks much more extreme. The energy regulator Ofgem has announced the average household bill will surpass £3,500 from October, and further sharp rises look inevitable. Indeed, our own estimates based on gas and electricity futures contracts this week point to an average annual household energy bill of around £5,300 across that same 12-month period from October (peaking at roughly £6,500 on an annualised basis in the three-month period between April-June 2023). That takes our aggregate household cost estimate up to around £130bn – a £65bn increase on May's projection - and this estimate is rising on an almost daily basis. Admittedly that figure is a bit of a simplification – it relies on a number of assumptions, not least that those wholesale futures contracts provide an accurate gauge of where prices will land this winter. Many of those contracts are trading fairly illiquid right now. But it gives a sense of what the new Prime Minister will be faced with when they take office in early September. Roughly speaking, the average household would see need almost £2,700 extra, were the government to match the level of support offered in June. One option would be to increase the value of payments being given to those on income support/benefits, and that seems quite likely. But in practice, a much broader response will also be needed. We’ve run a rough calculation in the chart below, and what’s striking is that across large parts of the income distribution, households may have to devote more than 10% of their disposable incomes to energy bills on average (between Oct 2022 and 2023), even accounting for existing support available. Some of these households will be able to tap savings accrued during the pandemic. That 'excess savings' level still stands at roughly 8% of GDP.  But it's hard for the government to target support on this basis, and it may find that the most practical option would be to dramatically increase the £400 energy bill discount being offered to all households. Households in most income deciles will be spending more than 10% of disposable incomes on energy Government support based on estimates produced by the UK Treasury as part of the 26 May Cost of Living package. For simplicity, we've used 2020/21 equivalised disposable income data, which in practice will have increased. Assumes energy prices increase by same percentage for all income deciles. Disposable income = after income tax/national insurance etc (but before accounting for housing and other costs) Source: ING analysis of ONS Living Costs and Food Survey, Effects of Tax and Benefits, Ofgem, UK Treasury Extra government stimulus would likely prompt additional rate hikes Whatever happens, the Bank of England will be looking at all of this through the lens of inflation. Broad-based government support would considerably reduce the chances of a recession - or at least of a deep downturn - especially given it may also be coupled with a cut to national insurance (a form of income tax) if Foreign Secretary Liz Truss becomes Prime Minister in September. The assessment also depends on what support is offered to businesses, something we've not discussed here. But broadly speaking, we agree with markets that the Bank of England would view reduced recession odds as raising medium-term inflation forecasts, and thus would likely feel obliged to hike rates further. To be clear, all of this is guesswork at this stage. Neither candidate, Rishi Sunak nor Liz Truss, have said in detail yet what level of support they’d implement this autumn. It’s not clear whether we'll get an emergency budget before the Bank of England's meeting on 15 September, but assuming we don't, we expect the Bank to opt for another 50bp then. We’ve recently argued that the Bank is reaching the latter stages of its tightening cycle. The BoE’s own August forecasts suggest inflation will be below target in a couple of years' time, regardless of whether it increases interest rates further. Inflationary pressures associated with 'core' goods are easing, given lower commodity costs, higher inventory levels and reduced consumer demand - even if wage growth will keep pressure on services inflation. But the arrival of fresh government support would provide the BoE with further impetus to hike rates aggressively in the near term, and probably into late autumn. We expect the Bank Rate to peak at roughly 2.5-2.75% in November, albeit far less than current market pricing is suggesting. Gilts are skidding off-road The jump in energy futures, as well as the surprise UK inflation report, are still being digested by the gilt market. These have brought about a rise in BoE hike expectations, an aggressive flattening of the gilt curve, and a sharp underperformance of gilts relative to US and European peers. In light of greater hike expectations, curve inversion is no surprise, and indeed the US curve has been there recently too. Worse inflation dynamics, as well as more immediate recession fears, should lead to a further flattening of the gilt curve compared to its US counterpart. With US inflation expectations looking more under control than in Europe, the spread between US and UK rates seems more directional to short-term European energy developments. The spread to EUR rates on the other hand is harder to explain. The UK is by no means the only country contemplating shielding its consumers from higher energy bills. Indeed, the measures floated so far in the UK pale in comparison to some continental alternatives. Similarly, energy inflation is a problem faced by all European countries. In short, the spread that has opened between GBP and EUR short rates has to narrow, and we think it will most likely be with lower GBP rates. The underperformance of 2Y gilts relative to Germany is overdone Source: Refinitiv, ING   The magnitude of these moves raises financial stability questions. We’ll refrain from drawing broader conclusions about the effect on the valuation of other assets beyond bonds but will simply stress that manageable rates volatility tends to be a pre-condition in many investment decisions. Closer to home, the latest moves will dash hopes of a return to more functional gilt markets. Gilt liquidity conditions continue to deteriorate Source: Refinitiv, ING   Bid-ask spreads have been propelled to new wides, and implied volatility continues to climb. These developments cast a long shadow on the Bank of England's plan to sell gilts out of its Asset Purchase Facility portfolio, even in small sizes. We don't argue that the plan should be shelved but a clearer circuit-breaker, which helps avoid adding to market stress, would make sense in our view. One could of course argue that the current episode is a one-off and that the BoE plans the sale of only £10bn per quarter in the first year. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The absence of a post-bank holiday rebound means July's GDP grew by only 0.2%, and we should expect further volatility over the next few months. But big picture, the announcement of an energy price guarantee should materially reduce the depth of a downturn this winter, even if it doesn't totally rule out the risk of a technical recession UK growth should be volatile in the months ahead July's GDP figures are disappointing The UK economy expanded by 0.2% in July, which was less than might have been expected. June had featured an extra bank holiday in recognition of the Queen’s Jubilee, and that had triggered an artificial drop in activity in some key sectors – albeit less pronounced than during the equivalent holidays in 2002 and 2012. However, July’s figures are largely absent of the mechanical rebound one might have expected, not least because that's what we saw after those previous jubilee holidays. For instance, manufacturing output grew only 0.1% in July, having fallen by 1.6% in June. It was a similar story in wholesale/retail and construction. We’re reluctant to pin any particular economic narrative to that, and instead, we think we’ll need to take this and indeed the next few months’ figures with a slight pinch of salt. The extra bank holiday this month, which coincides with Queen Elizabeth II’s funeral on Monday, means we’re likely to see similar volatility in the data during September and October. That means we’ll most likely need to wait until later in the fourth quarter to get a clearer sense of where the economy is headed, at least looking through the lens of the GDP numbers. For now, it looks like third-quarter growth will be largely flat, and the fourth quarter slightly negative. Government energy price guarantee should reduce the depth of a downturn Bigger picture, the announcement of an energy price cap by the government last week should make a material difference to the outlook this winter. The average household will see their energy costs capped at £2500 for the next two years, which when you factor in some existing support, should mean bills stay roughly the same as they are now for the time being. Businesses will also receive similar support for an initial six-month period. While we’d caution about automatically assuming this means the economy avoids a technical recession, it should help limit the depth of any downturn over winter to a few tenths of a percent. We’re also hopeful that the announcement of business support can help insure against a material rise in unemployment. Hiring demand has been slowing, and the clear risk was that the sharp rise in energy bills would see redundancies (which are currently at their lows) begin to rise. Incidentally, with the GDP figures looking volatile, we suspect the Bank of England will put slightly more emphasis on other data, including tomorrow’s jobs figures. We expect a 50bp rate hike when the Bank meets next week, and we’re pencilling another such move in November. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The number of workers classified as long-term sick has jumped dramatically in the past couple of months, and that's one reason why firms are still struggling to source the staff they need. While worker demand has cooled, Bank of England hawks will be worried that these shortages will continue to push up wage growth   At a headline level, the latest UK jobs numbers don’t look too bad. Unemployment fell by two-tenths of a per cent to 3.6%, the lowest level since 1974. But this is driven not by an increase in the number of people in employment, but primarily by another dramatic rise in those classified as inactive – that is neither in work nor actively seeking it. Alarmingly, the number of people classifying as not working due to long-term sickness is up by almost 400,000 since late 2019, and almost 150,000 in the last two months' worth of data alone. It’s hard to escape the conclusion that this is linked to the pressures in the NHS (National Health Service). The Bank of England will view all of this through the lens of the worker shortages that have plagued the jobs market for the past year or so. While some causes of that shortage appear to be abating – e.g. inward migration of non-EU workers has increased noticeably this year – other factors are, if anything, getting worse. A look at the survey evidence suggests firms are finding it no easier to find staff than they were a few months ago either. Both the BoE’s Agent’s survey and the ONS’ bi-weekly business survey have shown no improvement in the number of firms saying they are struggling to source workers. UK jobs market dashboard Worker shortages is taken from a question in the ONS bi-weekly business survey Source: Macrobond, ONS, ING   At the same time, demand for employees does appear to be cooling, though not necessarily very quickly. The level of job vacancies has fallen from its high, but the number of redundancies is low and stable (even if the level increased slightly in this latest data). The question now is whether the pressure from energy prices will force companies to revisit these plans and make more material changes to their workforce. We would expect a more visible impact on the jobs market over the next few months, but the government’s newly-announced pledge to cap corporate energy bills as well as households’ should help avoid a sharp rise in unemployment this winter. Persistent worker supply constraints coupled with so far only modest signs of reduced hiring demand will provide further ammunition for Bank of England hawks to push ahead with further tightening. We expect a 50 basis-point rate hike next week, and another in November. While markets may be overestimating how far the Bank will take interest rates over the coming months, we think the BoE is less likely to be cutting rates early into 2023 than some other global central banks. Read this article on THINK TagsUK jobs Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

We aren’t seeing much change in Europe ahead of the open on Tuesday after a broadly positive session in Asia as China, Hong Kong and South Korea returned following the bank holiday weekend. The last few days have seen a notable improvement in market sentiment. It’s not always easy to pinpoint what’s driving such a turnaround but the fact that it’s happening in the days leading up to the US inflation report is certainly interesting. Perhaps last month’s report has given investors confidence that another faster deceleration could be on the cards for August. That may sound premature but the fact is that two consecutive reports showing a sharp deceleration combined with last month’s goldilocks jobs report will be a really encouraging sign and could trigger a broader risk rebound in the markets. It may not be enough to tip the Fed balance in favour of a more modest 50 basis point rate hike next week but it may slow the pace of tightening thereafter. The Ukrainian counteroffensive in previously Russian-controlled territories in the east and the south, most notably in Kharkiv, may also be lifting sentiment. Pressure will mount on the Kremlin and while there’s no saying what its response will be, there’s certainly more hope that momentum is moving back in favour of Ukraine. Meanwhile, Europe is putting together plans to cope with higher energy prices this winter with the UK joining others in setting a cap on energy bills. While that won’t solve the problem of supplies or generate as much demand destruction, it will protect many households and businesses that otherwise wouldn’t have been able to cope this winter and could save the UK from recession. If not, it will no doubt make it much less severe. Not what the BoE wanted to see It’s not often that you see the unemployment rate fall to the lowest in almost 50 years and aren’t overjoyed, but that will certainly be the feeling at the Bank of England right now. The decline in the rate was driven by a decline in the labour force, while employment rose by only 40,000; far less than expected. What’s more, wage growth accelerated faster than expected, hitting 5.5% including bonuses in the three months to July compared with the same period last year. Less labour market slack and faster wage growth increase the odds of a 75 basis point hike from the MPC next week, especially against the backdrop of higher core inflation expectations over the medium term as a result of the new cap on energy bills. Can it build on the recovery? Bitcoin is holding onto gains ahead of the inflation data. The recovery has been very strong until this point but it may need a favourable report in order to hold onto them. A positive inflation number could see bitcoin add to recent gains with the next major test to the upside falling around $25,500. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Nerves ahead of US inflation - MarketPulseMarketPulse

Headline inflation will rise a little further having eased back below 10% in August, and it's likely to stay around 11% into early next year before falling back more dramatically. However, the Bank of England is watching wage growth more closely, as the hawks worry that worker shortages could lead to core inflation staying more persistently above target The introduction of a government cap on household energy prices means that we should now be fairly close to the peak in these headline figures The absence of another upside surprise to UK inflation this month takes a bit of pressure off the Bank of England to move even more aggressively when it meets next week. Headline CPI came in a touch lower than both consensus and last month’s level, at 9.9%, and that’s largely because of a near-7% fall in petrol/diesel prices during August. We expect another 2% decline in next month’s figures. The introduction of a government cap on household energy prices means that we should now be fairly close to the peak in these headline figures. The fact that electricity/gas bills won’t be rising by around 80% in October and a further 30-40% in January means that the peak in CPI should be around 5 percentage points lower. With the government due to cap the average household energy bill at £2500, up from around £2000 now, we expect a peak in the region of 11% in October. That's compared to 16% in January which is what we’d forecasted before the support was announced. UK inflation now set to peak at around 11% after energy price support Source: Macrobond, ING forecasts   We’d expect inflation to stay around there until early next year, before cooling more quickly as energy base effects kick-in. We think it could be more-or-less back to the Bank of England’s 2% target by the end of next year, crazy as that currently seems. But what policymakers are more interested in is core inflation – or to put it more accurately, the more persistent parts of the inflation basket. Here the news is mixed. On a month-on-month price basis, the increases we saw in August do seem fairly broad-based. However, there are signs that ‘core goods’ inflation is easing off, linked perhaps to the rise in retailer inventory levels relative to sales. That’s a function of supply chains beginning to improve, and in some cases commodity prices having fallen, which is coinciding with reduced demand for goods. Higher inventories and lower sales reducing pressure on goods prices Source: Macrobond, ING   However, the Bank is more focused on wage growth, and as we noted yesterday, the worker shortages that have plagued the jobs market for several months now don’t appear to be resolving themselves very quickly. The BoE’s hawks are concerned that this will translate into persistent pressure on wage growth. We aren’t totally convinced this will be enough to swing the pendulum in favour of a 75 basis-point rate hike next week, despite both the ECB and Federal Reserve going down this path. It’s a pretty close call, not least because the hawks will be worried about the recent slide in sterling, and markets are closer to pricing a 75bp move than a 50. But for now, we think another 50bp move next week is the most likely outcome, followed by another such move in November. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The prospect of lower near-term inflation takes some of the pressure off the Bank of England to move even more aggressively on Thursday. We expect a second consecutive 50 basis point rate hike, although it's a close call between that and a 75bp move Our Bank of England call We narrowly favour a 50bp hike on Thursday, taking the Bank Rate to 2.25%, although 75bp is clearly on the table and we would expect at least a couple of policymakers to vote for it. It's even possible we get a rare three-way vote – the first since 2008 – if dovish committee member Silvana Tenreyro votes for a 25bp hike as she did in August. If our call is correct, then we expect another 50bp move in November and at least another 25bp in December. That would take Bank Rate to the 3% area. It's a tough meeting to call... Next week’s Bank of England meeting is crucial. It will tell us not only how worried policymakers are about the slide in sterling and other UK markets, but also how the government’s decision to cap household/business energy prices will translate into monetary policy. It has also, undeniably, become a close meeting to call. Hawks at the Bank of England will undoubtedly be concerned about the independent sterling weakness we've seen recently (down 4% in trade-weighted terms), even if in practice it’s unlikely to make a huge difference to the big-picture inflation outlook. Both the Fed and ECB will have also done (at least) 75bp hikes by Thursday, and markets are increasingly concluding the BoE will do the same. But we’d caution against assuming UK policymakers will ramp up the pace of rate hikes simply because that’s what everyone else is doing – or indeed because that’s what markets are pricing. As recently as June, the BoE hiked by ‘only’ 25bp, despite the Fed having done 75bp the night before, and defying market expectations for more. Indeed, there are good reasons to think the Bank will ‘stick to its guns’ and simply repeat the 50bp hike it executed in August. Government energy price guarantee means inflation unlikely to go much higher Source: Macrobond, ING forecasts   One immediate consequence of the government’s decision to cap household electricity/gas bills this winter is that headline inflation should be dramatically lower. We now expect CPI to peak at 11% in October, only slightly above where it is now, compared to 16% in January had the government not intervened. It also means headline inflation should be back around the BoE’s 2% target at the end of next year, crazy as that sounds. All of that should help keep consumer inflation expectations in check, and in fact, we’ve already seen a noticeable pullback in long-term price expectations according to the latest BoE survey. Admittedly there appears to be a wide range of views at the BoE about how much all of this actually matters. But we know from recent comments, notably from hawk Catherine Mann, that some policymakers have had a keen eye on consumer expectations over recent months. By the BoE's own measure, consumer inflation expectations have dipped Source: Macrobond   The flip side, of course, is that extra government support potentially means higher medium-term inflation, even if headline rates are lower in the very near term. We think this is ultimately what most committee members will be more interested in. The hit to GDP this winter is likely to be more moderate than the 2% cumulative decline the BoE forecast in August, while the sharp rise in unemployment it projected is less likely to materialise too. With worker shortages proving to be a long-running issue in the jobs market, the risk is that higher wage growth could become a persistent feature that requires more central bank tightening. That doesn't necessarily have to manifest itself as a radically higher policy rate, and we still believe investors are overestimating the tightening to come. The swaps market is pricing a terminal rate in the region of 4.5% next year. Hiking by 75bp risks adding even more fuel to the fire, something we suspect the committee will be wary of doing, even if there are advantages in front-loading hikes. But even if the Bank doesn’t hike as far as markets expect, we do think the arrival of government stimulus means the BoE won’t be racing towards rate cuts next year, unlike some of its developed market counterparts. Gilts, looking for some clarity Gilts are looking for a much-needed reduction in uncertainty next week. Clearly, a 50bp hike would be a dovish surprise and help reverse some of the front-end’s weakness but even in the case of a 75bp move, the BoE clarifying its reaction function with regards to the energy package would be helpful. Fiscal and monetary policy competing with each other is an unnerving thought for bondholders. The Treasury’s fiscal event next week should also help answer any lingering questions about the size and financing of the energy support measures. Gilts should widen to 200bp against Bund on a generous fiscal package Source: Refinitiv, ING   Even if the gilt ‘fear factor’ eases next week, it doesn’t answer the key question: who will buy all these gilts? A deficit-financed energy package will add to supply and to the BoE reducing the size of its portfolio. Private investors will have to make up the shortfall. This is not impossible but they will likely be some reluctance initially given the amount of new debt released into the market. The BoE’s plan to start outright sales of gilts, albeit in small amounts initially, is an additional source of concern. On Thursday, the Bank is expected to vote in favour of starting this process, despite concerns about stress in the UK bond market. Divergence in the size and financing of energy packages in the UK and the eurozone means the spread between 10Y gilts and bund should widen to 200bp. Read this article on THINK TagsUK fiscal policy Inflation Central banks Bank of England Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

A package of retail sales statistics in Britain appears to have removed the last layer of support for the Pound, sending it into a dive. GBPUSD earlier today renewed its lows since 1985, dropping to 1.1350. Sales Drop Fresh data showed a 1.6% m/m and 5.4% y/y drop in sales, which was noticeably weaker than the expected 0.5% m/m and 4.2% y/y decline. This upsetting surprise has added to the pressure on Pound, which has been losing 0.9% against the dollar and yen and 0.6% against the euro after the report. Where Can GBP/USD Go? There has been an almost non-stop, albeit very measured, sell-off in the Pound since August 11, with a brief pause for a shake-out of the dollar bulls' positions. In turn, this momentum looks to be part of a downward wave since March. In that case, the GBPUSD can fall to 1.06, where the 161.8% Fibonacci mark passes from the February peaks to the July lows. It is also worth noting that this technical target is very close to the historical lows of the GBPUSD at 1.0520, which only adds to its attractiveness for the rest of the year. Bank Of England Due to inflation being off the charts by historical standards, the Bank of England has much more motive to make currency or verbal interventions to buy the collapse of the Pound. This is especially true given the recent one-way movement in the British currency. As such, traders and investors should be prepared for a rate hike of more than 50 points next week, as previously done and expected. A tightening of monetary authority rhetoric is also likely.

In this podcast, ING's Chris Turner, Antoine Bouvet and James Smith discuss this week's US and UK inflation data, the implications of government intervention in energy markets and the outlook for monetary policy        In this podcast, Senior Editor Rebecca Byrne sits down with ING's Global Head of Markets Chris Turner, Senior Rates Strategist Antoine Bouvet and Developed Markets Economist James Smith to discuss the week's biggest market-moving events. Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The UK economy, including the British pound's quotations, has had a very turbulent year. The authority of the British currency may have first been undermined by the exit from the European Union, and then the British economy suffered a blow from a pandemic. The British Isles' severe energy crisis and high inflation may be adding to this. Read next: China Positive Reports,Drop In Retail Sales, Waiting For European CPI| FXMAG.COM Since the beginning of this year, the British pound has lost more than 15 percent of its value against the U.S. dollar. This makes the GBP the second weakest of the world's major currencies, just after the Japanese yen, losing more than 19 percent. In addition, if someone was taking the 2014’s peak as a reference point, the GBP's loss against the USD could reach more than 30 percent. As a result, the market has reached levels last seen in 1985. Source: Conotoxia MT5, GBP/USD, MN The British pound after a rough ride Observed in the chart above, the two significant lows in the region of $1.1400 were first the impact of brexit on GBP quotes, and the second was the impact of the pandemic. Currently, this level seems to be tested for the third time. Today, further disappointing data from the British economy may have contributed to the pound's weakness.  The volume of UK retail sales in August fell 1.6 percent from the previous month, the Office for National Statistics reported on Friday. The regression was larger than analysts had expected. Sales fell on a monthly basis for the first time since July 2021.  Non-food store sales slid 1.9 percent month-on-month, auto fuel sales fell 1.7 percent and grocery store sales were 0.8 percent lower, according to the data, which is summarized by BBN's website. As a result of weakening consumer demand and thus possibly the overall British economy, investors seem abandoning the GBP, which this morning is at its weakest since the 1980s against the USD. Rate hikes are not helping the GBP Expectations of interest rate hikes in the UK at this point also do not seem to be helping the pound. Some analysts note that even the GBP is moving like an emerging market currency. These could be characterized by the fact that the higher the investment risk, the lower the exchange rate, despite interest rate hikes. While interest rates in the UK may be higher than in the US over time, investors seem to be turning away from the pound anyway. It seems that under these circumstances, the British currency might have a hard time regaining investor confidence.   Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. Read article on Conotoxia.com

US Many on Wall Street are watching the Fed’s rate hiking cycle and are getting nervous they will tip the economy into a recession.  With scorching inflation, the FOMC may consider a full-point rate hike but will likely settle on delivering its third consecutive 75 basis-point increase. At Wednesday’s policy meeting, Fed Chair Jerome Powell will likely acknowledge downside risks to growth are here and unrelenting inflation is forcing them to maintain an aggressive pace of tightening.  Inflation risks are still tilted to the upside and will likely keep the Fed from providing any hints that a “Fed put” is coming. EU  The ECB appears to be one of the few major central banks not holding a monetary policy meeting next week but that won’t keep them out of the headlines. Policymakers are scheduled to make regular appearances including Philip Lane on Saturday which may present some weekend risk. On Friday, the flash PMIs could give an idea of how the economy is coping and whether it is heading for a recession in the fourth quarter, as some fear. UK Monday is a bank holiday in the UK as the country pays its respects to Queen Elizabeth II on the day of her funeral. After being pushed back a week due to the 10-day period of national mourning, the BoE will meet on Thursday and it has a big decision to make. Inflation is running extremely hot – although it did drop back below 10% last month – and while it has likely not yet peaked, the high should be much lower now that the new government has announced a cap on energy bills.  That may come as a relief to many but it could mean higher core inflation and interest rates further down the road. How the BoE responds to all of this without the aid of new economic projections is what will interest investors. The week draws to a close with PMIs on Friday. Russia Markets continue to monitor the situation in Ukraine amid a strong counteroffensive that saw Russia concede a lot of ground while raising the prospect of defeat and waning support for Vladimir Putin. The only economic release next week is PPI inflation on Wednesday.  South Africa The SARB is expected to hike rates by another 75 basis points to 6.25% on Thursday as inflation continues to rise. The CPI is currently well above the 3-6% target range at 7.8% and the central bank will get an update on this the day before their decision, which could play a role in just how aggressive they’ll be this month.  Turkey One central bank that almost certainly won’t be raising interest rates next week is the CBRT. Last month, it unexpectedly cut rates by another 100 basis points to 13% despite inflation running at almost 80%. That has risen further since but the central bank will not be deterred. No change is expected from the CBRT next week but clearly, another rate cut should not be ruled out. Switzerland Inflation continues to run hot which makes a large rate hike on Thursday from the SNB highly likely. Markets are pricing in at least 75 basis points, maybe even 100, taking the policy rate out of negative territory for the first time since early 2015. The central bank loves to spring a surprise though, the biggest recently perhaps being that it’s waited until a scheduled meeting to act. We’ll see how bold it’s prepared to be on Thursday.  China China is expected to keep rates unchanged at 3.65%, as the 1-year LPR (Loan Prime Rate) was just recently adjusted down from 3.7%. If the Chinese central bank unexpectedly adjusts rates to a lower level again, it may be detrimental to the yuan. The PBOC’s fixings are must-watch events now that the yuan has weakened beyond the key 7 against the dollar.   India Traders will pay close attention to the second quarter current account data.  Expectations are for the current account deficit to widen from $13.4 billion to $30.36 billion.  India has been weakening as trade balances balloon and foreign investment takes a big hit.   Australia & New Zealand Traders are awaiting the release of the minutes of the RBA meeting next Tuesday and upcoming speeches by RBA’s Kearns and Bullock. The RBA seems poised to move forward with smaller rate hike moves, but traders will look to see if the latest round of RBA speak confirms the downward shift discussed by central bank chief Lowe.  It will be a busy week in New Zealand as a steady flow of economic data is accompanied by a couple of RBNZ speeches by Governor Orr and Deputy Governor Hawkesby.  The big economic releases of the week are Wednesday’s credit card spending data and Thursday’s trade data.     Japan The FX world is closely watching everything out of Japan. Traders are waiting to see if policymakers will intervene to provide some relief for the Japanese yen. What could complicate their decision is that Japan has a holiday on Monday.   The divergence between the Fed’s tightening cycle and the Bank of Japan’s steady approach continues to support the dollar against the yen. The BOJ is widely expected to keep rates on hold even as core inflation extends above the BOJ’s 2% target.    Singapore The focus for Singapore will be the August inflation report that should show pricing pressures remain intense.  The year-over-year reading is expected to rise from 7.0% to 7.2%.  Economic Calendar Saturday, Sept. 17 Economic Data/Events Thousands pay their respects to Queen Elizabeth II at Westminster  European Central Bank chief economist Lane speaks at the Dublin Economics Workshop in Wexford, Ireland Monday, Sept. 19 Economic Data/Events World leaders attend Queen Elizabeth II’s funeral in Westminster Abbey in London UK Bank Holiday Japan Bank Holiday New Zealand performance services index RBA’s head of domestic markets Kearns delivers the keynote address at the Australian Financial Review Property Summit in Sydney ECB’s de Guindos speaks at the annual Consejos Consultivos meeting   Tuesday, Sept. 20 Economic Data/Events US housing Starts Canada CPI China loan prime rates Japan CPI Mexico international reserves Spain trade Sweden rate decision: Expected to raise rates by 75bp to 1.500% UK Parliament in session Annual UN General Assembly in New York Dockworkers at the UK’s Port of Liverpool are expected to begin a two-week strike Norges deputy central bank Governor Borsum speaks German Economy Minister Habeck speaks at the congress of municipal energy suppliers RBA releases minutes from its September policy meeting. BOC Deputy Governor Beaudry delivers a lecture on “pandemic macroeconomics” at the University of Waterloo in Ontario Wednesday, Sept. 21 Economic Data/Events FOMC Policy Decision: Fed expected to raise rates by 75bps US existing home sales Argentina unemployment, trade Australia leading index New Zealand credit-card spending South Africa CPI Big-bank CEOs testify before the US House Financial Services Committee at a hearing titled, “Holding Megabanks Accountable.” RBA Deputy Governor Michele Bullock speaks at a Bloomberg event in Sydney ECB’s de Guindos to speak at Insurance Summit 2022 organized by Altamar CAM in Cologne, Germany EIA crude oil inventory report Thursday, Sept. 22 Economic Data/Events US Conference Board leading index, initial jobless claims China Swift global payments Eurozone consumer confidence BOJ rate decision: No changes expected with rates and 10-year yield target Japan department store sales New Zealand trade, consumer confidence Norway rate decision: Expected to raise rates by 50bps to 2.25% South Africa rate decision: Expected to raise rates by 75bps to 6.25% Switzerland rate decision: Expected to raise rates by 75bps to 0.50% Taiwan jobless rate, rate decision, money supply Thailand trade Turkey rate decision: Expected to cut rates by 100bps to 12.00% UK BOE rate decision: Markets remain split between expectations for a half-point or a three-quarter-point hike. US Treasury Secretary Janet Yellen addresses the Atlantic Festival in Washington. The UN Security Council holds a meeting on Ukraine   BOE’s Tenreyro speaks at a seminar at the San Francisco Fed on “climate-change pledges, actions and outcomes.” Friday, Sept. 23 Economic Data/Events US Flash PMIs Australia prelim PMI Canada retail sales European Flash PMIs: Eurozone, Germany, France, and the UK Singapore CPI Spain GDP Taiwan industrial production Thailand foreign reserves, forward contracts Norway Central Bank Governor Wolden speaks Sovereign Rating Updates Germany (S&P) Hungary (Moody’s) Sweden (Moody’s) European Union (DBRS) Finland (DBRS) This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Week Ahead - Aggressive tightening - MarketPulseMarketPulse

EURGBP breaks key resistance The pound tumbles as the UK’s August retail data disappoint. The buying pressure has been building up under June’s peak at 0.8720. The breakout prompted the last sellers to cover. As the euro’s rally gains momentum, this could open the door for a sustained climb towards 0.8900, which is a supply area from January 2021’s sell-off. 0.8800 is the intermediate resistance ahead. The RSI’s overbought situation could temporarily trim the buying and 0.8700 would be the first support in case the euro takes a breather. Read next: How High Will The Bank Of England Raise Rates?| FXMAG.COM AUDJPY seeks support The Australian dollar softens as investors shun risk assets. The pair is looking to hold onto its recent gains after rallying above June’s high at 96.60. However, short-term price action may struggle as there is no sign of committed buying yet. A break below 96.70 has forced leveraged buyers to bail out. The daily support and psychological level of 95.00 is a major area to gauge buying interest. A bounce will need to lift 96.40 before it could take hold. Failing that, a bearish breakout would deepen the correction below 94.00. GER 40 tests critical floor The Dax 40 slips as high interest rates prompt investors to take refuge in cash. After hitting the supply zone around 13500, the index has given up all gains from this month’s rally. This is a strong indication of the prevailing bearish bias. 12610 is the next support and its breach would bring the index back to the critical level of 12420. Then a bearish breakout may cause the remaining bulls to abandon the ship, resuming the downtrend towards 11900 in the medium-term. 12900 is a fresh resistance in case of a bounce.

September has proved an exceptional month for the dollar. In the G10 space, the dollar has rallied anywhere from 1% against the Swiss franc to as much as 7% against sterling. Events in the UK highlight the pressure-cooker conditions facing non-USD currencies. Expect a day of consolidation today and a focus on central bank speakers in the US, UK, and Europe USD: An array of Fed speakers today Monday was a wild day in FX markets. Sterling was falling heavily and the dollar was firmer across the board as both bond and, to a much lesser degree, equity markets were under pressure. G7 FX volatility is now back to levels last seen in March 2020. Interestingly EMFX volatility is higher too, but still below the highs of this year. Sterling is clearly making a difference here. The narrative remains the same. Central bankers remain wholly focused on taming inflation – even at the expense of recession. We think last week's economic's projections from the Fed will still take some time to sink into the market's consciousness. The Fed projects that the US unemployment rate will rise to 4.4% by the end of next year from 3.7% today - but will still be raising rates to 4.50/4.75% in the process. Overnight the Fed's Loretta Mester reiterated that a more restrictive policy was needed for longer. Mester was also asked about the strong dollar and understandably replied that the Fed does take it into account when setting policy and also looks at the dollar's impact on financial market volatility. On the latter subject we suspect the 12 October meeting of G20 central bankers and finance ministers will garner more attention than usual – e.g. does the FX language in the Communique get tweaked to express concern over disorderly FX moves? For today's session, the focus will be on Fed speakers and second-tier data. On the roster, we have Evans (0930, 1115CET), Powell (1330) and Bullard (1555). We also have durable goods orders, new home sales, and consumer confidence. Any upside surprise in US consumer confidence only makes matters worse for the rest of the world, in that the Fed will have to tighten harder to bring aggregate demand lower. DXY may hold support at 113.00 since we look to be in a powerful phase of a dollar bull trend. Chris Turner EUR: One way traffic EUR/USD touched a new low for the year near 0.9550. Looking at a EUR/USD chart it has been pretty much one-way traffic since the summer of 2021. Question: what changed then? Answer: The Fed, which shifted from its super-dovish experiment with average inflation targeting to more conventional tightening. Events in Ukraine have only managed to cement the Fed's inflationary concern while hitting Europe's growth prospects. In short, do not expect a turn in EUR/USD until the Fed's work is done – and that doesn't look like it's happening until 1Q23 at the earliest. Separately, European growth prospects remain challenged as clearly demonstrated in some very concerning German IFO data released yesterday.   Expect intra-day EUR/USD rallies to stall in the 0.9700 region again and we doubt much hawkish ECB speak makes much difference here.  Elsewhere, we still like EUR/CHF lower. The dollar is the second-largest weight in the Swiss National Bank's (SNB's) Swiss franc trade-weighted index. A higher USD/CHF means the SNB will tolerate a lower EUR/CHF as it seeks to guide the nominal Swiss franc stronger. 0.93 is the direction of travel for EUR/CHF. Chris Turner  GBP: Buying time for the pound For a major reserve currency, it is typically hard to maintain these high levels of volatility for prolonged periods – but sterling may well try to defy that. We say that because UK policymakers have tried to buy time for the pound by: a) the UK Treasury promising a proper budget assessment on 23 November from the Office for Budget Responsibility (OBR) alongside a medium-term fiscal plan and b) the BoE promising to take all market moves into account when it decides on monetary policy on 3 November. But six-to-nine weeks is a long time in FX markets and on Monday investors were disappointed about the lack of an emergency rate hike from the BoE. We had felt that the BoE would prefer to avoid getting sucked into defending the pound with rate hikes. The delay in a policy response until November, therefore, leaves sterling vulnerable – though we would prefer to describe it as sterling finding the right level such that the Gilt markets clear. We are not sure we are there yet, however. FX markets feel like the dollar is going into early 1980s over-drive territory and barring a stark reversal in hawkish Fed expectations or slowing growth dynamics, we would say Cable could retest 1.0350 over the next month. UK markets will now be hyper-sensitive to any communication from UK policymakers. Today at 13:00CET sees BoE chief economist, Huw Pill, speak on the well-timed subject of 'Economic and Monetary Policy challenges ahead'. We doubt he will offer more than what was in yesterday's BoE statement, but on a day in which the dollar is consolidating, GBP/USD could trace out something like a 1.07-1.09 range. Chris Turner  HUF: Is the hiking cycle coming to a peak? The National Bank of Hungary's (NBH) monetary policy meeting takes place today and we expect another strong 75bp rate hike to 12.50%. Surveys are leaning more towards a 100bp step but market pricing is a bit more complicated. Short-term expectations in the one-month horizon (1x4 FRA) are pricing in just over 150bp, however they do include the October meeting as well. On the other hand, market expectations have cooled in recent weeks and while the terminal rate was still priced in at around 14.50% in early September, at the moment markets are expecting the peak of the hiking cycle to be just over 13.50%. Thus, it should not be a problem for NBH to support hawkish expectations. On the other hand, since the publication of our preview, we have heard several statements from NBH officials that the hiking cycle is coming to an end. From this perspective, this would make our 75bp hike call look hawkish. However, the forint is once again approaching the 410 EUR/HUF level and a dovish surprise would not be good news for the forint. Moreover, markets are increasingly questioning whether Hungary will get an injection of EU money, which Fitch highlighted as a risk to the sovereign rating on Friday, and more headlines should emerge in the coming days. So overall the picture is very mixed and it is hard to find a clear path on what to do next. However, our call for today's NBH decision should mean positive support for the forint. Frantisek Taborsky Read this article on THINK TagsFX Daily FX Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Sterling has fallen close to 10% on a trade-weighted basis in a little under two months. That's a lot for a major reserve currency. And traded volatility levels for the pound are those you would expect during an emerging market currency crisis. We take a look at the (unpalatable) policy options available to stabilise sterling British pound hits all time low against US Dollar, London, United Kingdom - 26 Sep 2022 Source: Shutterstock Defining a crisis Unlike equity markets where in excess of a 20% fall from a peak is called a bear market, definitions in FX markets are a little looser. Suffice to say that GBP/USD is the worst performing G10 currency this year at -20% year-to-date, just pipping the Japanese yen to that position. (Japan intervened last week to support its currency for the first time since 1998). Typical emerging market currency crises since the early 1990s have seen exchange rates fall anywhere near 50-80%. The large size of these adjustments has typically been a function of the breaking of an exchange rate regime/peg. The UK has learned from its experiences in ERM II in 1992 and has operated a free-floating FX regime ever since – arguing against sterling following some of the outsized EM FX adjustments outlined above. However, the 3.5% decline in Asia overnight and the now 28% levels for one week traded GBP/USD volatility (close to the highs in March 2020) certainly marks trading out as ‘disorderly’. Disorderly markets normally prompt a response from policymakers. As we go to press, headlines suggest that the Bank Of England (BoE) is considering making a statement later today. Below we take a look at the possible policy responses and their likelihood. GBP/USD sinks towards parity - one week volatility surges Source: ING, Refinitiv Sterling stabilisation measures – a look at the policy options Fiscal U-turn. Comments from the UK government over the weekend that the Treasury is mulling further tax breaks in coming months, would suggest ministers are unlikely to change course imminently. But mounting pressure, perhaps coupled with comments from rating agencies over coming weeks, means investors will be looking for signs of at least a partial policy U-turn. Ministers may emphasise that tax measures will be coupled with spending cuts, and there are hints at that in today’s papers. We also wouldn’t rule out the government looking more closely at a wider windfall tax on energy producers, something which the prime minister has signalled she is against. Such a policy would materially reduce the amount of gilt issuance required over the coming year. BoE to suspend QT. First inflation, then fiscal concerns, and finally a broader run on sterling and sterling-denominated assets. In all three cases, gilts have been at the wrong end of the stick. One particular concern for gilts is policy cooperation between the Bank of England and the Treasury. Be it on inflation, fiscal, or on confidence in the currency, markets have the distinct, and unnerving, impression that the two institutions in charge of economic management in the country are working at cross purposes. Gilts are caught in the crossfire. Despite this list of legitimate macro concerns, we also suspect that the magnitude of the move in gilts these past days (adding up to roughly 100bp moves at the front-end of the curve in two days) has been magnified by worsening liquidity. We have been highlighting the deterioration in gilt trading conditions all year. The BoE has added fuel to the fire by seeking to reduce its gilt holdings. In an environment where private investors are justifiably nervous about greater gilt issuance, and also greater gilt riskiness, the BoE is adding to gilt supply, and will soon engage in outright sales. A low-hanging fruit, in our view, would be to suspend quantitative tightening until market conditions improve.  Emergency BoE rate hike. The collapse in sterling over recent days has unsurprisingly sparked expectations of an inter-meeting rate hike. That should not be ruled out, though we suspect the committee will be reluctant. Thursday’s BoE decision suggests the BoE is – rightly or wrongly - less concerned about sterling than a lot of market commentary is suggesting they should be. As a rough guide, the 7-8% fall in trade-weighted sterling since the start of August, if persistent, would add somewhere between 0.6-0.8ppt to inflation at its peak. That’s not insignificant, but is it enough in itself to necessitate an inter-meeting hike? Probably not. But the key question is whether an emergency rate hike would do all that much. Certainly, it would need to be bold, and likely in excess of 75bp. A bold rate hike would prompt further complications, too. Rate hikes of the magnitude now being priced by investors would start to be highly problematic for mortgage holders and corporate borrowers. While the vast majority of UK mortgages are fixed, around a third of those are locked in for less than two years. For corporates, the BoE estimated last year that 400bps worth of rate hikes (from near-zero) would take the proportion of firms with low-interest coverage ratios to a record high. In the first instance, we’re more likely to see BoE hawkishness channelled through speeches this week, emphasising that it can move more forcefully if needed in November. Indeed, the pendulum is increasingly swinging towards a 75bp hike (or perhaps more) at that meeting. We would also say that the BoE may be psychologically scarred from the events in 1992, where defensive rate hikes failed to keep sterling in the ERM II mechanism. FX Intervention. Last week Japan intervened to support their currency for the first time since 1998. We do not think FX intervention is a credible option for the UK. The UK only has net FX reserves of $80bn, less than two months’ worth of import cover. The adage in FX markets is that no intervention is better than failed intervention. Instead, we may see building interest in the G20 central bankers and finance ministers meeting on 12 October. Will the FX language in the Communique get tweaked to show concern over disorderly dollar strength and hint at joint FX intervention?   Dollar swap lines. Typically in a currency crisis, we hear about the need for additional access to dollar funding through dollar swap lines. For reference, the BoE already has a permanent and unlimited dollar swap with the Federal Reserve. However, these lines are designed to provide support for dollar funding challenges and not for Balance of Payments needs. Dollar funding does not seem to be a problem for UK banks, but the BoE could make a pre-emptive move here by re-introducing an 84-day dollar auction in addition to the current 7-day facility.    IMF Flexible Credit Line. Given many references to Friday’s UK budget being the most generous since the Barber budget of the early 1970s, there will, unfortunately, be comparisons drawn to the UK seeking an IMF bailout in 1976. We assume the stigma of going to the IMF would prompt some aggressive UK policy adjustments beforehand, but just for reference, a good quality credit, Chile, (sovereign-rated A/A-) recently received an $18bn ‘precautionary’ Flexible Credit Line (FCL) from the IMF, joining the likes of Colombia, Mexico, Peru and Poland. Chile’s FCL was eight times its IMF quota. The UK receiving eight times its IMF quota ($200bn) would seem unlikely in that the IMF already has a total of $144bn lent out according to some estimates and the lack of conditionality of an FCL may not be a good signal given the nature of the sterling crisis. Capital controls. Highly unlikely. Capital controls have been used by Russia this year to support the rouble. But Margaret Thatcher dismantled capital controls in the UK in 1979. A reversal of such measures would be a complete anathema to the new Truss government’s agenda of deregulation and liberalisation. GBP/USD May Reach Parity, EUR/GBP To Near 0.95? At this stage, we think UK authorities will probably just have to let sterling find its right level. The UK has a reserve currency so it can always issue debt – it’s just a question of the right price. We are still bullish on the dollar this year as Fed leads the deflationary charge and global growth slows. That means GBP/USD is now vulnerable to a break of parity later this year, while - quite unexpectedly - EUR/GBP can make a run towards the March 2020 high of 0.95, with outside risk to the 2008 high of 0.98.  Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The US dollar is under some pressure on Tuesday morning, which can be attributed to the dollar's local profit-taking after substantial gains on previous days. European equities and US index futures are also getting some relief, pulling back from lows. Read next: GBP/USD Is Expected To Trade Between 1.07 And 1.09 Today. Could British Pound Touch 1.0350 In Next Month? Fed And ECB Members Speak Today| FXMAG.COM The dollar has been in increasing demand in recent months, as comments from the Fed are methodically pushing higher the expected interest rate ceiling and for longer However, until we see a change in the fundamentals, bounces like today's are likely to be nothing more than local retracements of established trends - bullish for the dollar and bearish for equities. There is little doubt in the markets now that the main driving force behind the markets is the continuing tightening of current and, most notably, expected conditions. The dollar has been in increasing demand in recent months, as comments from the Fed are methodically pushing higher the expected interest rate ceiling and for longer. Not all major central banks have the ability or the courage to maintain the same pace, which is taking the dollar's main competitors out of the game. But these same conditions require regulators to act more aggressively. Last week, Japan began its interventions to defend the yen exchange rate. The Swiss National Bank has repeatedly warned that it is ready to intervene. Observers have also demanded action from the Bank of England. But the latter has yet to budge, taking a week to assess the situation. In the words of the ECB officials, there is more and more evident dissatisfaction with the ongoing weakening of the euro. Because a sharp rise in interest rates in over-leveraged economies may come as a shock, the central bank may intervene to stop the unilateral weakening of national currencies. Right now, it seems unlikely that the major central banks would be willing to press on the dollar in a coordinated way as they did in 1985 with the secretly prepared so-called Plaza Accord. It hardly fits with US priorities to lower inflation and weaker commodity prices. At the same time, there are increasing risks that the major central banks, one by one and acting on the situation, may use this almost forgotten instrument to stop unilateral speculation against their currencies. Among the other majors, the GBP has the highest currency intervention risks right now, with EUR and CHF slightly less so In our view, since last week and for the foreseeable future, Japan has already included interventions in its active policy, potentially limiting the USDJPY from rising above 145. It is unlikely to be an easy ride for Japan's Ministry of Finance, but it has the strength to fight back. Among the other majors, the GBP has the highest currency intervention risks right now, with EUR and CHF slightly less so. In Canada and China, the monetary authorities are not concerned about the exchange rate, as inflation is slowing down there. Hence, it is unlikely that we will see interventions in the CAD and the CNY. Although the Australian dollar has lost 6% since the beginning of the month, it is now 18% above the 2020 'bottom', so in our view, monetary authorities can use traditional rate hikes and quantitative tightening for now.

Bank Of England "Ready To Act" Stock markets have steadied in Asia and early European trade on Tuesday but that is not reflective of the mood in the markets at the moment so it may struggle to hold. The volatility in FX markets at the start of the week has been extreme but it’s also been building for weeks as authorities desperately try to arrest the decline in their currencies, particularly against the US dollar. On Monday it was the UK that was front and centre following the mini-budget on Friday that showed total disregard for the environment in which it was being implemented. Promising much higher borrowing to fund huge tax cuts at a time of double-digit inflation that hasn’t even peaked is beyond bold and the backlash is well underway. There’s nothing wrong with being ambitious on the economy but timing is everything and when the cost is much higher interest rates, there won’t be many winners and the economy simply won’t see the benefit. The question now is whether the pressure both externally and from within will force a rethink in order to settle things down. Read next: The Weakening Real Estate Market In The USA And More Speeches| FXMAG.COM The Bank of England did little to help. After speculation all day of an impending announcement, the central bank only sought to reassure markets that they stand ready to act but probably not until the next meeting in early November when it is armed with new macroeconomic projections. Needless to say, that reassured no one and sterling plummeted again after recovering amid the rumours of the announcement. BoJ intervenes amid rising yields It’s not just the UK that’s contending with a haemorrhaging currency, the Japanese Ministry of Finance was forced to intervene last week for the first time in 24 years in order to support the yen. Of course, while the UK’s problems appear largely self-inflicted, Japan is suffering as a result of a growing rate divergence that is worsening month to month. So much so that the Bank of Japan was forced to intervene itself overnight with another bond-buying operation to the tune of 250 billion yen. The problem with yield curve control is that when yields are rising everywhere, pulling those in Japan with them, the upper limit is frequently tested necessitating intervention which in turn weakens the currency. It seems Japan is now stuck in an intervention doom loop until central banks elsewhere see peak inflation and therefore rates, or the BoJ loosens its grip and allows yields to move a little higher. This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. More turmoil to come? - MarketPulseMarketPulse

The end of last week and the beginning of this week have been a veritable rollercoaster in the financial markets. The volatility experienced by the currencies of developed countries during this time, especially the British pound, could be compared to the period of the Great Financial Crisis, the Brexit referendum or the pandemic hitting the financial markets. Current overview of financial markets Today, financial markets seem to be trying to catch their breath after the recent turmoil. The U.S. dollar seems to be slightly losing value in the broad market, which may also be caused by the phenomenon of profit realization from sudden dollar trends. As of 09:300 GMT+3 on the Conotoxia MT5 platform, the EUR/USD was up 0.57 percent to $0.9663 today. The GBP/USD rallied 1.3 percent to $1.0821, while bitcoin returned above the $20000 level, rising just under 6 percent. Stock index contracts also rebounded. The DAX rose less than 1.5 percent to 1,377 points, and the S&P500 rose 1.48 percent to 3704 points. The dollar index, on the other hand, retreated 0.65 percent to 113.57 points. It had earlier set a new peak in a multi-month trend above 114.60 points. Source: Conotoxia MT5, USDIndex, H4 Financial markets race to peak interest rates The market at present, seems to be outdoing itself in betting on which level and country would peak in interest rates. The British pound may come out on top due to the fact that the Bank of England might be forced to counter the British government's fiscal easing and may raise interest rates faster and more than previously expected. Currently, the market is assuming that interest rates in the UK could rise as much as 175 bps and only until November, while the market sees the peak of the cycle in the region of 6%. Meanwhile, in the US, the interest rate market is assuming that the Fed funds rate range could reach its peak in February 2023. This could be between 4.5 and 4.75 percent. Thus, the U.S. bond market may also be close to the full discount of hikes, as yields on 2-year bonds reached 4.3 percent yesterday. In the Eurozone, on the other hand, the EUR could be above 3 percent in six months. Thus, lower than the pound and the dollar, while higher than the Japanese yen. For the JPY, interest rates are expected to remain unchanged over the year, according to the market's valuation of interest rate levels. Source: Conotoxia MT5, GBP/USD, m30 What's next for the British pound? According to Citigroup, parity on GBP/USD looks "quite likely," as there are no clear valuation thresholds for the pound, but "I still wouldn't go so far as to say it's inevitable," Ebrahim Rahbari, global head of FX analysis at Citigroup, said on Bloomberg TV. "We are looking at parity as the next big level," he added. While conventional valuation suggests that sterling doesn't need to get much weaker, "it's really that risk premium that comes with some of the policy measures that makes it so likely that we'll drift, perhaps beyond parity." Currency troubles are unlikely to escalate into a crisis, he said, because the UK doesn't have much debt denominated in foreign currencies. He added that: "The threat of default is much less significant." Meanwhile, Morgan Stanley has revised its forecast for the pound and now sees it reaching parity with the dollar by the end of the year, as neither currency interventions nor emergency rate hikes by the Bank of England will stop the sterling's weakening. "Recent price action suggests that the GBP is under pressure," - Morgan Stanley analysts wrote in a Monday note. The bank's previous forecast for GBP/USD was 1.02. It is now 1.00. The analysts also revised their forecast for EUR/GBP to 0.9500 by year-end from 0.9100 previously. Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. Read article on Conotoxia: Stock market news: The financial market tries to take a breather. What's happening to the pound? (conotoxia.com)

Equities and FX decouple as we end the quarter Source: shutterstock Macro outlook Global markets: The bounce didn’t last long. Both S&P500 and NASDAQ fell sharply again on Thursday, the S&P by 2.11% and the NASDAQ by 2.84%. That puts year-to-date losses at respectively 23.62% and 31.37%. And we’d be inclined to argue that we haven’t yet seen the bottom. The S&P500, for example, is sitting just around its June lows, so any break below this level sets the scene for some substantial further declines. On the positive side, equity futures are pricing in small gains at today’s open, but that's a long way from saying that stocks will rally into the weekend and the end of the quarter. UK Gilts gave back some of their gains yesterday on the Truss government’s insistence on sticking to its mini-budget, and yields have risen across the UK curve, though this doesn’t seem to have the market’s eye in the same way it did earlier this week. 2Y US Treasury yields headed up 5.8bp to 4.192% and the yield on the 10Y bond rose a similar amount to 3.786%. 10Y Bunds rose 5.8bp to 2.14%, hurt by a 10% YoY September inflation print (10.9% for the harmonized index). And while this is cementing thoughts of a 0.75% rate increase at the next ECB meeting, that seems like a lame response in a month where the price index rose by 2 percentage points. For now, currency markets seem to disagree, and the EURUSD has risen to 0.982, though this seems a little incongruous against the data backdrop. Other G-10 currencies also did better against the USD. The AUD is now back up above 65 cents, while the GBP has risen to 1.1145 – a long way from the 1.035 low of the week (and approx. last 4 decades!). Can this last? It seems a long shot as there’s plenty more bad news to be priced in. The JPY has also had a reprieve, and is back to 144.42, while the CNY led APAC’s FX gains, gaining by more than a per cent to 7.1249 onshore. G-7 Macro: Besides the unpleasant German inflation data, the macro picture was quite thin, with some marginal upward revisions to 2Q22 US GDP, and a lower than expected initial claims figure suggesting that the Fed still has its work cut out to slow the economy enough to bring inflation down. Today, we see the full European inflation picture for September, which is likely to exceed the 9.7%YoY consensus estimate. This won’t have been adjusted yet for the German figures. US Personal income and spending data will show how consumer spending held up in August together with the latest PCE inflation figures.  And we round off the week with the University of Michigan consumer sentiment (and inflation expectations) figures. China: We expect the manufacturing PMI to be under 50 as manufacturing for real estate construction will still be in monthly contraction. Furthermore, export demand is waning and that could affect manufacturing activity for holiday-season exports. However, services should continue to pick up as Covid measures become more localised. India: The Reserve Bank of India (RBI) meets today to decide on rate policy and the following three factors are relevant to that decision: 1) Inflation is 7.0%, a full per cent above the top of the RBI's target range 2) it is heading in the wrong way. 3) RBI commentary has been clear about the need to focus on fighting inflation. Put that all together and it looks likely that the RBI will deliver a further 50bp of tightening today, taking the repo rate to 5.9%. Later this evening, we will also get India’s fiscal deficit figures for August. Although all major rating agencies have India’s long-term foreign credit rating at "stable', and the deficit data year-to-date seem on track to meet the government’s 6.4% (GDP) target, it wasn’t that long ago that Fitch raised their outlook from negative. The deficit numbers have been whipped around by government subsidies and attempts to limit the pass-through of high energy prices to the consumer, so these are still worth a quick look. South Korea: Industrial production dropped more than expected in August, recording a -1.8%MoM decline (vs -1.3% in July and -0.8% market consensus). Automobile production rebounded (8.8%) but the declines in semiconductors (-14.2%) and petrochemicals (-5.0%) were bigger. We believe that re-opening will support 3QGDP, but thereafter, there should be a sharp deceleration. We also now expect only a 0.1% QoQ gain in 3Q22 (vs 0.7% in 2Q). Yesterday’s business survey outcomes were also quite weak, with manufacturing sentiment rapidly deteriorating to the lowest level since October 2020. Also, today’s forward-looking construction orders data were soft, suggesting more recessionary signals in the coming quarters. Japan: Japan’s data releases surprised the market on the positive side. The jobless rate edged down to 2.5% (vs 2.6% in July), in line with the market consensus. The Jobs-to-applications ratio continued to rise (has risen for several months in a row). And industrial production in August not only recorded a third monthly rise (2.7% MoM sa), but also beat the market expectation significantly (0.2%). We will revise up third quarter GDP soon based on today’s releases. The stronger jobs market is also a good sign for wage growth together with solid production gains. However, we think it is still too early to tell because Japan is reopening at a slower pace than other Asian countries and the reopening effects are just kicking in. With growing global recession headwinds, the BoJ will likely take its time to see whether Japan can still produce solid outcomes in a sustainable way. What to look out for: US core PCE, personal spending and Michigan sentiment South Korea industrial production (30 September) Japan labor market data (30 September) China official and Caixin PMI manufacturing (30 September) India RBI meeting (30 September) Hong Kong retail sales (30 September US personal income, personal spending and core PCE (30 September) US University of Michigan sentiment (30 September) Read this article on THINK TagsEmerging Markets Asia Pacific Asia Markets Asia Economics Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

British pound calm after tumultous week The British pound has posted slight gains, after a spectacular showing on Thursday. In the European session, GBP/USD is trading at 1.1145, up 0.26%. For anyone looking for lots of volatility, look no further. The pound has taken riders on a wild ride, with GBP/USD surging 2.1% on Thursday. On Monday, the pound traded in a stunning 500-point range, which saw GBP/USD touch a record low of 1.0359. Since then, the pound has padded on 800 points, in what has been a truly remarkable week. The driver behind the pound’s volatility was Chancellor Kwarteng’s mini-budget, which included tax cuts and increased borrowing. The package was roundly criticized, with even the IMF and US officials panning the plan. This led to a near-crash in the UK bond market, forcing the Bank of England to take emergency measures and pledge unlimited purchases of securities. The bailout will continue for over two weeks and could cost up to 60 billion pounds. The BoE’s intervention has reassured investors and stabilized the bond market. The pound continued to swing wildly, but it has recovered almost all of the losses triggered by the mini-budget. What happens now? The government clearly was not expecting a financial tsunami after a mini-budget, which are usually tame affairs that don’t affect the financial markets. Prime Minister Truss is under pressure to shelve or at least make changes to the mini-budget, but so far Truss is holding firm and insisting that she will stick with the plan. If she does, we can expect inflation, which is running at a 9.9% clip, to climb even higher. GBP/USD Technical GBP/USD has support at 1.1144 and 1.1052 There is resistance at 1.1265 and 1.1384 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Pound takes a breather after wild ride - MarketPulseMarketPulse

Despite a lot of tightening priced into the swaps market, we believe it is unlikely that the Bank of England will hike rates before the scheduled November meeting. In the US, unemployment remains stable at 3.7% and with wage growth staying elevated, we see few signs that the pace of tightening will slow In this article US: Inflation is sticky as unemployment remains low and wage growth remains elevated UK: Intermeeting Bank of England hike looks unlikely despite ongoing turmoil Canada: Hopeful for a stabilisation in the jobs market Eurozone: Expecting declining trend in retail sales Source: Shutterstock US: Inflation is sticky as unemployment remains low and wage growth remains elevated Financial markets are currently favouring the Federal Reserve implementing a fourth consecutive 75bp rate hike on 2 November and we agree. Inflation is sticky while the near-term growth story is looking OK and the economy continues to add jobs in significant numbers. That message should be reinforced by the upcoming labour report with unemployment staying at just 3.7%, payrolls increasing by around 200,000 and wage growth staying elevated. There are also plenty of Federal Reserve officials scheduled to speak and so far there is little sign of any inclination to slow the pace of policy tightening. The ISM business activity report should remain firmly in growth territory as well with the trade balance making further improvements. As such, we are expecting 3Q GDP to come in at close to 2%. UK: Intermeeting Bank of England hike looks unlikely despite ongoing turmoil UK markets remain volatile, and sensitive to further headlines over the coming week. We remain sceptical that the Bank of England will hike rates before its scheduled November meeting, despite a lot of tightening priced into swaps markets. Instead, we’ll be watching for any update on the Bank’s bond strategy. The BoE was forced to start buying long-dated gilts amid concerns about the stability of UK pension funds, but this is for a limited period and the Bank has said it plans to plough on with gilt sales from the end of the month. We think that’s likely to get pushed back, however, given the strains in the gilt market. Markets will also remain hyper-sensitive to any headlines related to the government’s controversial growth plan. In the first instance, press reports suggest the focus will be on spending cuts to offset some of the planned tax cuts, though this could be both practically and politically challenging. The Office for Budget Responsibility is due to provide a first draft of its post-Budget forecasts to the Chancellor privately on Friday. Canada: Hopeful for a stabilisation in the jobs market In Canada, the jobs market has wobbled of late with employment falling for three consecutive months after some very vigorous increases earlier in the year. We are hopeful of stabilisation in Friday’s September report given the economy is still performing relatively well, but if we are wrong and we get a fourth consecutive fall then expectations for Bank of Canada tightening could be scaled back somewhat – especially after some softer than anticipated CPI prints. We are currently forecasting a 50bp rate hike at the October BoC policy meeting with a final 25bp hike in December. Eurozone: Expecting declining trend in retail sales For the eurozone, it’s a pretty light week in terms of data. Retail sales on Thursday catch the eye as we’ll get more information on consumer spending in the eurozone, as purchasing power remains under severe pressure. We’ve seen a declining trend in spending since last November and have little indication that August data will have shown a big turnaround. Continued declines would fuel our view that the eurozone economy could have already tipped into contraction in the third quarter. Key events in developed markets next week Source:  Refinitiv, ING TagsUnited States Eurozone Canada Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

OANDA Senior Market Analyst Craig Erlam reviews the latest market news with Jonny Hart. They discuss the UK fiscal situation, Japanese intervention, OPEC+ and the week ahead. http://www.subscribeonandroid.com/audioboom.com/channels/4947364.rss This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Market Insights Podcast (Episode 382) - MarketPulseMarketPulse

Central banks are still far from bailing markets out. There is no evidence that financial stability concerns are distracting them from their inflation fight. Their inflexibility is why we see more upside for rates and spreads Risks remain to the upside for rates BoE and ECB let markets fly on their own If financial stability no doubt registers on central banks’ consciousness, it is doubtful that they see policy implications. The Bank of England (BoE) balking at buying long-end gilts for the second day in a row clearly confirmed that it sees its operation as a temporary backstop, and not something that should dilute its monetary policy stance. Along the same lines, the European Central Bank’s (ECB) reluctance to support peripheral bond markets in August and September 2022 by using PEPP reinvestment flexibility sends a similar message. In the BoE’s case, the gilt long-end received the message loud and clear. 10s30s is racing back towards the levels prevailing before the mini budget and subsequent BoE intervention. If the shape of the curve is the best sign that markets are pricing out BoE intervention, it is the speed of the sell-off that should keep investors up at night. 30Y yields are up almost 40bp this week. Let us hope that pension funds and other structural swap receivers managed to reduce their exposure, or found funding sources for inevitable collateral calls. Markets are forward-looking, and there are no ECB purchases for them to look forward to The glass half full take on European Central Bank (ECB) intervention, or lack thereof, is that spreads remained contained without its help. This is particularly notable in a context of rising core rates and rates volatility. The problem with this take is that markets are forward-looking, and that there are no ECB purchases for them to look forward to. It seems, the bar for purchases is higher than previously thought and could get even higher as hawks seem intent on pushing discussions on quantitative tightening (QT). Read next: RBNZ “Hawkish” Move Offers NZD Support, Australian Retail Sales Rose 0.6% During August| FXMAG.COM Gilt 10s30s is steepening back to its pre-BoE intervention level Source: Refinitiv, ING Central banks can't afford to be complacent on financial stability A look at wider market stress indicators in rates and credit yields a similar conclusion. For the most part, peripheral and core rates are already at crisis levels, but not yet at a breaking point. This is hardly encouraging. A bright spot so far has been short-term funding and money markets but, each time, it is clear that the ECB’s heavy hand is responsible. This is all well and good but the expiration of TLTRO loans, tiering, and the looming QT discussion means markets cannot count on ECB support going forward. Expect to see new highs in yields and spreads as a result of central bank intransigence We think it would be wrong to take comfort in still (barely) functioning markets and that central banks should pay greater attention to financial stability. Balance sheet reduction programmes are adding to financial instability and could ultimately make their fight against inflation harder, not easier, if they are forced to choose between rescuing financial institutions and cooling the economy. Despite the BoE’s intervention last week, we keep a cautious outlook on bond markets. We expect to see new highs in yields and spreads as a result of central bank intransigence. The ECB barely intervened to support spreads in August/September 2022 Source: ECB, ING Today's events and market view European data releases today comprise German and UK construction PMIs and eurozone retail sales, but the minutes of September ECB meeting are likely to steal the limelight. We’re unlikely to get much discussion on QT but we might see some on reserve tiering. Even if this isn’t the case, it is possible that officials discuss in the press the content of yesterday’s ‘non-policy’ meeting discussions on either topics. In the minutes proper, the extent of the ECB’s inflation worries and reasons for a change in reaction function should be the main focus. Jonathan Haskel, of the BoE, is on today’s list of speakers. Bond markets have to absorb supply from Spain (7Y/8Y/10Y/30Y) and France (10Y/30Y/44Y). Today’s US job data menu includes jobless claims and Challenger Job Cuts but this will merely be an appetiser to tomorrow’s employment report. Charles Evans, Lisa Cook, Neel Kashkari, Christopher Waller, and Loretta Mester are all lined up to give their spin on the latest economic, and perhaps financial, developments. Read this article on THINK TagsRates Daily Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

GBP/USD is down sharply today. In the North American session, GBP/USD is trading at 1.1150 down a massive 1.58%. The pound continues to exhibit sharp volatility, with swings of over 1% every day this week. Fitch downgrades UK debt outlook The fallout surrounding Chancellor Kwarteng’s ill-fated mini-budget just won’t go away. After immense pressure, Kwarteng abolished the tax breaks for the top 1% earners in a humiliating U-turn that has badly damaged the credibility of the new government. The fiasco sent the pound to a record low and forced the Bank of England to step in after the bond market was close to crashing. On Wednesday, the Fitch ratings agency lowered its outlook for UK debt from “stable” to “negative”, following a similar move by Standard & Poor’s after the mini-budget. Fitch did maintain the UK’s credit rating of AA-, but the lower outlook will not help Prime Minister Truss’ beleaguered government. The pound was pummelled in September, losing 3.9%. The outlook for the pound does not look good, with soaring inflation and the new government’s serious missteps after only a few weeks in office. Manufacturing PMI remained below 50, which indicates contraction. Today’s Construction PMI rose to 52.3, up from 49.2, but much of the improvement was due to an easing in supply shortages, and new orders fell to their lowest level since May 2020. In the US, the spotlight will be on Friday’s nonfarm payroll report. The reading is an important bellwether of the health of the US economy and can provide insights into the Federal Reserve’s future rate policy. On Wednesday, the ADP employment report showed a slight improvement at 208,000, up from 185,000 (200,000 est.) The ADP release is not a reliable forecaster of the official NFP release, but ADP is now using a new methodology, which hopefully will improve its reliability. Non-farm payrolls are expected to decline to 250,000 in September, down from 315,000 in August. A reading that is well off the estimate could trigger volatility from the US dollar – a strong reading will raise expectations that the Fed will stay very aggressive, while a soft release could mean the Fed has to pivot earlier than it expected. GBP/USD Technical GBP/USD is testing support at 1.1206. The next support line is at 1.1085 There is resistance at 1.1350 and 1.1486 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. GBP/USD slides after Fitch's downgrade - MarketPulseMarketPulse

Markets are still digesting the repercussions of the Chancellor's "mini-budget". In the latest move, the BOE increased the amount of authorized buybacks through TECRF facility. That's the intervention launched to shore up the pound in the wake of the announcement of financial reforms. Despite a rebound in the later part of September, cable has resumed its longer-term downward trend against the dollar. However, that has been aided in large part by the unexpected drop in the US unemployment rate, which increased the bets that the Fed would raise rates by 75bps at its next meeting. Now, the main concern surrounding the budget appears to be the uncertainty. In that situation, the market often assumes the worst. As presented, the budget appears to increase spending (which is pro-inflationary), while reducing taxes (which questions the financial stability of the government). The combined response is to expect the BOE to hike rates more aggressively to fend off the expected increase in inflation. Bringing things back to reality Depending on how the "mini-budget" is financed, however, it could allay many of those concerns. The problem is that the key "detail" won't be available until the end of November, and the BOE will have to decide at their next meeting before that. It also opens questions of just how well planned this plan was, since the long wait is ostensibly to figure out where to get the financing for the spending. It doesn't inspire confidence that the government is issuing a plan to increase spending and cut taxes without having first ironed out where the financing for that will come from. In the meantime, there is rampant speculation that the government will cut government expenditures on a wide range of services, from pensions to government employment. That makes investors nervous, and likely would lead to even less popularity of an already unpopular government. The Labour Party, already leading in the polls, would be expected to radically change the financial situation. Getting the data in hand Government spending is included in GDP measures, meaning that if one of the ways to balance the budget is to reduce government outlays, it would put downward pressure on the leading measure of economic growth. Last quarter GDP was revised in the final reading to be barely positive at 0.2%, from a flash reading of -0.1%. On Wednesday, the UK reports August GDP, which is expected to come in at -0.1% compared to +0.2% in July. The BOE has warned that a recession is coming, and now traders are focused on the September data to see if Q3 will be the start of that. Employment figures On Tuesday, the UK will release September Claimant Count numbers, which are expected to show a relatively modest increase to 10K from 6.6K. Remember that the higher the number, the more negative it is for the markets, since it accounts for the number of people seeing unemployment assistance. The total employed figure from the rolling three months to July is also released at the same time, but is unlikely to move the markets despite a surprising forecast. The expected significant drop in employment is due to a technicality, of the unusually high number in April rolling off.

The approaching end to the Bank of England’s purchases has sent gilts into a tailspin, a repo facility would help deal with margin financing but won’t solve the underlying problem. Joint EU debt issuance could compound fears of a more hawkish European Central Bank The Bank of England The end of BoE gilt buying looms large The Bank of England (BoE) tried – and failed – to reassure markets about the end of its gilt-buying program on 14 October. Despite a greater buying capacity of £10bn at each of the remaining operations, offers were limited and the BoE only managed to buy less than £1bn on Monday. The underlying concern is that even as its intervention draws to a close, not enough deleveraging has been achieved by pension funds, and that another wave of forced selling will emerge into next week. Volatility could well force the BoE back to the gilt market, maybe as early as today As the BoE itself has said, the aim of the buying facility was to buy pension funds time to shore up their liquidity position. Concerns remain about whether the last week-and-a-half was enough to achieve this in distressed market conditions. Eventually, the gilt sell-off could force the BoE back into the market. As we wrote at the time, we think a longer period of support for gilts will be necessary to restore market confidence. 30Y gilts traded at 4.7% yesterday, just 30bp below their pre-intervention peak, and their weakness dragged the pound lower. Volatility could well force the BoE back to the gilt market, maybe as early as today. And indeed, the Bank just announced that it will extend its purchases to inflation-linked gilts, adding one buying operation of up to £5bn each day this week to the already scheduled conventional gilt purchases. Helpfully, the announcement came alongside the launch of a repo facility accepting a broader range of assets as collateral. The idea is that instead of being forced sellers of, say, corporate bonds due to growing margin requirements, pension funds could instead pledge them as collateral to obtain financing. The facility will be in place for one month. In our view, this should be viewed as a complement to support the gilt market, not as a replacement, as a gilt sell-off (30Y yields have risen 110bp since their post-intervention through, for 30Y inflation-linked gilts, that figure is over 150bp) could still generate margin calls that exceed the fund’s funding capacity. In a further sign of its concern for market stability, the BoE also temporarily suspended its corporate bonds' quantitative tightening (QT) sales for two days. Long-end gilts are back in the danger zone Source: Refinitiv, ING The multi-headed fiscal hydra is back Of course, the difficulties facing the UK are not unique. The Fed’s tightening cycle and the rising dollar are thorns in the side of many central banks already grappling with inflation, including the ECB. In that context, Bloomberg reporting that Germany is dropping its opposition to joint EU borrowing to finance the energy support package is unlikely to be greeted kindly by bond investors. If confirmed, it would mean more issuance in already nervous markets (have a look at today’s supply slate in the last section), but investors would also worry about the inflationary impact and the ECB’s reaction. Markets can find solace from the contradictory sources cited by Reuters late yesterday. The concern however is that the reports come after Germany unveiled an up to €200bn package, drawing criticism from other countries with insufficient bond market liquidity to finance a commensurate package. Joint issuance would be bad news for core bonds which would nervously await the ECB’s reaction. For sovereign spreads, however, this is good news, as EU loans would lower pressure on peripheral bond markets. The prospect of ECB balance sheet reduction also casts a long shadow on bond markets. Klass Knot suggested that QT could begin at the earliest in early 2023. We still doubt QT could start in such a short timeframe but, if it does, we could see phased-out asset purchase programme (APP) redemptions in 2023, followed by pandemic emergency purchase programme (PEPP) redemptions in 2025. The strongest impact should be felt in peripheral debt markets, while it could also compound the tightening of money market spreads (eg rising Euribor vs Estr or Estr vs ECB deposit rate) due to targeted longer-term refinancing operations (TLTROs) repayments. The reduction in ECB purchases has already sent bond yields up Source: ECB, ING Today's events and market view Italian industrial production is the main item on today’s economic calendar but it is fair to say that the attention will be on the heavy bond supply slate after yesterday's gilt-led, long-end sell-off. The EU and Germany have both mandated banks for the sales of 7Y/20Y and 30Y bonds, respectively, via syndication. This will come on top of 2Y and 7Y auctions already scheduled by Germany and the Netherlands. The aftermath of the sales could see relief in the sector provided the gilt sell-off doesn’t accelerate. In that respect, the results of the sale of £0.9bn of 30Y inflation-linked gilts, the epicentre of yesterday's market rout, and the focus of newly announced purchases operations, will be key. In the afternoon, the main flashpoint will be US small business optimism. Our economics team flagged the pricing intention component as an important indicator to watch for declining inflation. The US Treasury kicks off this week's supply slate with a 3Y T-note auction for $40bn. Central bank speakers will also be plentiful. From the ECB, Philip Lane and François Villeroy are on the schedule. We’ll look closely for comments on QT or on the risk of more fiscal spending (see above). Andrew Bailey, of the BoE, will also be closely watched as the Bank’s response to the jitter in the gilt market is coming under greater scrutiny. Read this article on THINK TagsRates Daily Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The Bank of England's frenzy of emergency bond market support is rocking the currency market boat, leaving GBPUSD as one of the protagonists on FX. The Bank of England extended emergency support to the debt market yesterday to include inflation-linked bonds in its buying list, triggering GBPUSD to rise from 1.10 to 1.1180 intraday. But in the evening, Governor Bailey reminded that the emergency measure remains temporary and these extended purchases will end on October 14 as planned. These statements triggered mini-chaos in the debt market and took more than 2.3% off the pound from its peak to bottom on Wednesday morning at 1.0923. This bipolar policy is perplexing, although it makes a certain sense. The Bank of England insists on leaving emergency market support temporary, while the market wants an extension of the support programmes, although it makes little use of it. The Bank of England issued bids for £40bn over the two weeks of the program but bought £5bn. Distressed pension funds are in no hurry to sell bonds, simply hoping that the very presence of a "buyer of last resort" will drive up prices — a habit developed in the markets over the past decades. Remarkably, the FX market is greeted by news of an extension of the QE programme or a "flexible approach" to bond purchases with GBP buying. Conventional logic suggests that buying assets on the balance sheet is a net issue for the pound, increasing its supply, which is harmful to the exchange rate. But now bond purchases are lowering the heat on the UK debt market, bringing buyers back into the pound. Locally GBPUSD is gaining support on declines in the 1.0900 area, reassuring that the exchange rate has already passed its low point in September. It is worth being prepared for the Bank of England to accelerate short-term interest rate hikes to support the attractiveness of the short-term debt market. But in the meantime, periodic interventions at the far end of the curve are not ruled out. Overall, this is a positive strategy for the pound, although frequent shifts between support and constraint regimes create volatility in the pound and increase risk premiums in the markets.

It's been helpful to see core US inflation easing off the highs through the summer. However, the past month or so has seen a re-elevation. And today, the market expects US core inflation to get back up to the 6.5% peak that was seen in March. Market rates remain well below this, as is the Fed funds rate. Based off this alone, rising rates pressure is the upshot Rises in core US inflation can only pressure market rates higher When the Federal Reserve delivered its first 25bp hike in March, core consumer price inflation (CPI) was running at 6.5%. That in fact proved to be a peak, as it wandered to below below 6% in subsequent months. But, it rose last month, and the market is expecting it to have risen again for September (today's report), back up to 6.5%. That’s discouraging against a backdrop where the Federal Open Market Committee minutes paint a clear picture of an intention to keep rate hike pressure elevated until inflation has been tamed. A wider problem for the Treasury market has been the tendency for core measures of inflation to edge higher again in the past couple of months. We saw that from the US PPI report yesterday, with similar expected from the US CPI report today.  The Fed's target of 2% inflation remains quite deviant from the 6% handle that core inflation continues to cling to. And even though we expect inflation to fall in a precipitous manner in the quarters ahead on base effects, a recent tendency for core to remain quite elevated and sticky does not help. This maintains upward pressure on Treasury yields. The 10yr yield has popped above 4% twice in the past few weeks (for the second time yesterday), and seems reluctant to push on above. But in all probability should we see a 6.5% core CPI inflation reading confirmed today, it should provide enough ammunition for it to make the break above. Yes, it’s what is discounted. But confirmation still has real meaning. It’s these inflation numbers that continue to drive market rates, and even though real rates have moved solidly positive and breakeven inflation resolutely lower, the fact remains that market rates remain well below printed inflation rates, as does the funds rate (and the Fed knows it). 30Y GBP swap indicates gilt yields will soon rise above their pre-intervention peak again Source: Refinitiv, ING The BoE is trying to hold the line In the wake of the Fed pressing ahead on its aggressive tightening trajectory, tensions in other markets become more apparent. The UK rates market continues to be a large contributor to volatility as the Bank of England tackles the ongoing fallout from monetary and fiscal policy working at cross purposes. The BoE’s chief economist had signalled the need to raise rates significantly in November, also citing the likely inflationary impact of the government's budget plans as they currently stand. But the announcement of the medium-term fiscal strategy has been brought forward to 31 October, just days before the BoE is set decide on interest rates. Gilt yields only dropped back after the BoE accepted all bids in its daily buying operation Until then the BoE may well continue to play hard ball, at least to the extent that financial stability allows. For now the intervention in the long-end sector of gilts is set to expire by the end of this week, as much was confirmed by a Bank statement after mixed signals in the press. On that prospect the 30Y gilt yield had indeed briefly climbed above 5%, the level reached before the BoE first started long-end gilt purchases, and only dropped back after the BoE accepted all bids in its daily buying operation. The question remains whether two more days of BoE purchases will be enough to calm markets.       ECB quantitative tightening talk is becoming more concrete The European Central Bank is watching the BoE’s struggles closely. It is also seeing the potential risk of fiscal policies pushing it towards more aggressive tightening than otherwise. ECB President Lagarde urged cooperation between central banks and their governments. The remarks of the Dutch Central Bank’s Klaas Knot reflected some unease when he said that he was not sure whether all fiscal measures were targeted enough. Against that backdrop the pricing of rate hikes had already become more aggressive with the market pricing more than 125bp of hikes still this year and the 1y1y ESTR OIS forward close to 3%. The ECB is also seeing the risk of fiscal policies pushing it towards more aggressive tightening And looking beyond rate hikes, the talk of quantitative tightening is already becoming more concrete. President Lagarde confirmed yesterday that the Council had started deliberations on the topic. Other members have already been more specific about the ECB’s plans for its balance sheet. France's Villeroy reiterated that the balance sheet reduction should commence after the normalisation of rates, first with the repayments of the targeted longer-term refinancing operations, where a good part expires in the middle of next year, and then by a gradual reduction of the asset purchase programme portfolio as reinvestments are phased out. This could start before 2024. ECB QT will widen money market spreads, starting in 2023 Source: ECB, ING   Wary of the impact that already the communication surrounding quantitative tightening may have on markets, the ECB’s current messaging does appear more streamlined than we have experienced in the past. It was also Klaas Knot who remarked that bond markets had become more sensitive to debt sustainability issues, and thus “a process like QT – it should be predictable, it should be gradual, it should be even a little bit boring”. The key risk gauge is the 10Y spread between Italian and German government bonds, which temporarily rose some 8bp yesterday, though also amid greater market volatility spilling over from the UK. For eurozone bond markets the ECB's bond purchases have been instrumental in bringing down bond spreads, and with the excess liquidity injected also in the compression of money market. A reversal of the purchases is therefore all but boring. While the emerging outlines of the ECB's quantitative tightening plans are consistent with the assumptions we have made so far, we think there could still be a considerable effect on sovereign and money market spreads.   Today's events and market view Markets will continue to have one eye on the UK's and the BoE's buying operations – and any hint that the intervention could be prolonged. Gilt markets remain a major source of volatility, though today should also see US data taking the spotlight with the CPI data for September. It is the one release where a large surprise could potentially still swing the Fed away from another 75bp jumbo hike, which markets by now are fully discounting. The consensus is looking for the headline rate to be 8.1% year-on-year. In the core rate the focus should be on the anticipated decline in the monthly rate from 0.6% to 0.4%. In the eurozone primary market Italy will sell a new 3-year bond alongside reopenings of 7-, 15- and 30-year bonds for a total of up to €8.75bn. The US Treasury will reopen the 30Y for US$18bn.  Read this article on THINK TagsRates Daily Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

OANDA Senior Market Analyst Craig Erlam reviews the latest market news with Jonny Hart. They discuss the Bank of England, UK GDP, Bank of Korea rate decision and preview the Fed minutes. http://www.subscribeonandroid.com/audioboom.com/channels/4947364.rss This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Economists at HSBC analyze the outlook for UK stocks, gilt yield and the British pound. The UK economy remains in a challenging environment. A challenging outlook for the UK assets “We now see the risk to UK equities more firmly to the downside. We, therefore, move our tactical weighting to an underweight. We have a preference for more defensive sectors and energy within the globally focused FTSE 100 index.” “For gilts, in the long-run, we expect that slowing UK growth next year will eventually lead to falling yields. But in the near-term, the market is too volatile to take a strong directional position so we stay on the sidelines for now.” “The risks to GBP remain to the downside as it will take time for confidence to return, and some of the current weakness is also a consequence of the continued strength of the USD. Against a broader basket of currencies, GBP hasn’t yet reached previous lows, which it could test as the economic climate becomes more strained.”

GBP/USD has reversed directions today and is in negative territory. In the North European session, GBP/USD is trading at 1.1274, down 0.34%. Pound jumps on tax cut U-turn The pound continues to show strong volatility and jumped 2% on Thursday. The sharp swings over the past few weeks were triggered by Chancellor Kwarteng’s mini-budget in late September. Normally tame affairs, the mini-budget contained sweeping tax cuts to stimulate economic growth. Perhaps a solid idea in normal times, but with soaring inflation, high interest rates and the spectre of a recession, the markets absolutely savaged the plan. Even the IMF gave the plan a thumbs-down. The pound plunged to a 37-year low after the tax cuts were announced, and the Bank of England had to intervene due to a near-crash in the UK bond market. The new Truss government has had to make a humiliating about-face, and reports on Thursday that the government would abolish the planned tax cuts sent the pound sharply higher. The BoE was forced to step in with an emergency gilt-buying program, which is expected to end today. There is some concern that the bond market could show further volatility, in which case the BoE will have to again intervene. The government’s clumsy attempt to slash taxes could cost Prime Minister Truss and Chancellor Kwarteng their jobs, and the political uncertainty and instability surrounding the new Truss government will only add to the pound’s problems. The US wraps up the week with the September retail sales report. This will be a report card on how consumer spending is holding up, given red-hot inflation and high interest rates. Headline retail sales is expected to nudge lower to 0.2% MoM (0.3% prior), while core retail sales is projected to come in at -0.1% (-0.3% prior). GBP/USD Technical GBP/USD faces resistance at 1.1373 and 1.1455 There is support at 1.1214 and 1.1085 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. GBP/USD dips, US retail sales next - MarketPulseMarketPulse

Investors want to see bold changes from new Chancellor Jeremy Hunt later today. Further wholesale changes to the "mini" Budget are likely, and so is a fall in 10-year government bond yields to 4%. But closing the fiscal hole entirely will be challenging, and without the Bank of England's bond buying, sustaining the rally in gilts could prove challenging New UK Chancellor poised to announce fresh U-turn The story is once again moving pretty fast in the UK. New UK Chancellor Jeremy Hunt will unveil further U-turns on the government’s "mini" Budget later today (11am UK time), in effect bringing forward large parts of the ‘Medium-Term Fiscal Plan’ from 31 October. With Prime Minister Liz Truss under heavy political pressure, there’s a sense that Hunt now has the latitude to make sweeping changes. The goal is to meet a fiscal rule that says debt should fall as a percentage of GDP in the medium term. Friday’s lukewarm market reaction to reinstated plans to increase corporation tax showed that a piecemeal/incremental approach to policy change is unlikely to be sufficient to reassure investors. According to reports in the Sunday Times, the Office for Budget Responsibility (OBR) forecasts that including the measures in the Growth Plan a few weeks ago, the government faces a shortfall of £72bn. That’s now closer to £50bn as a result of the most recent U-turns. So what options does the Chancellor have?  Seven possible options for the Chancellor Delay (or cancel entirely) the planned cut to the basic rate of income tax and abandon smaller plans. This looks like it’s essentially a done deal, judging by press reports. Abandoning plans for a 1p cut to income tax would save roughly £5bn, and a further £5-8bn could be saved by getting rid of smaller measures in the growth plan, including on tax-free shopping for visitors. Reverse the planned cut in national insurance (a tax on workers/their employers). Previous Chancellor Rishi Sunak had increased this tax last year, and new PM Truss committed over the summer to reverse it. Treasury costings suggest this decision would cost £18bn per year by 2026-27. The government will be highly reluctant to do a U-turn here, partly because a bill repealing Sunak’s NI change passed through the House of Commons last week. Cut day-to-day public spending. Chancellor Hunt hinted in TV interviews over the weekend that spending is unlikely to rise as quickly as previously planned. But promising spending cuts is often much easier than delivering them. Partly that’s because many departmental budgets have already been cut heavily in recent years, but also because many were already set to see their funding fall sharply in real terms over the next couple of fiscal years. As a result, we think investors will treat any pledges to cut spending with some caution. Cut public sector net investment plans. Before Covid, government capital spending was typically 2% of GDP in each fiscal year, but under former PM Boris Johnson, this was projected to increase to 3%. Cutting back these plans could potentially save £25bn a year, though in practice this could take time. Needless to say, this is inconsistent with plans to grow the supply side of the economy. But we think cuts here are likely given the challenges involved with reducing current (day-to-day) spending. Look at other tax rises. Given challenges elsewhere of closing the fiscal hole entirely, the government may find it needs to look at more wide-ranging tax increases. An increase in the rate of VAT for instance would raise upwards of £10bn depending on the scale. Revenue cap on renewable energy producers. The FT reported last week that this is effectively a done deal, subject to the finer details. It would work in a similar way to the EU’s proposals, which would heavily tax any revenues made by renewable energy producers above a certain level of wholesale electricity prices. Depending on its construction this could potentially raise tens of billions of pounds. But perhaps more importantly, it would act as a natural hedge against the cost of the government’s energy price guarantee. Make the energy price guarantee less generous. The government’s decision to cap household electricity/gas prices for two years went further than many expected when it was announced in early September. The fact that it applies equally to all households does suggest some room to make the policy more targeted, though in practice that’s complicated. Without the cap, households in most income deciles were set to see energy costs top 10% of disposable incomes. With few ways to target support beyond the income tax and benefits system, the practicalities of adjusting support based on economic need could be challenging. Nevertheless, there are potentially big savings to be made if a mechanism can be found to target the policy more accurately. Increasing income tax rates temporarily is the most obvious way of achieving this, though clearly would be hugely politically challenging. The BoE has pushed back against expectations of more gilt purchases Source: Refinitiv, ING A rally in gilts is likely - but can it be sustained? The latest reports suggest that we should expect most of the "mini" Budget to be scrapped today, with the exception of the stamp duty cut (that has already come through) and the national insurance cut. But the lesson from the menu of options presented above is that the government will likely find it needs to go further than that to balance the budget - and indeed may find it needs to lean more heavily on tax rises than spending cuts in order to make the biggest impression on financial markets. The chancellor will also be acutely aware that wherever borrowing costs settle over the coming days will have a bearing on OBR forecasts due on 31 October. A fall in gilt yields would translate into a fall in projected interest costs and in turn, reduce the fiscal hole a little bit further. OBR ready-reckoners suggest a 1 percentage point fall in gilt yields and short-term rates would see a £16bn fall in annual spending requirements by 2026/27. So far, gilt markets have reacted positively this morning to the latest fiscal press reports. But ultimately, the monetary value of the deficit reduction measures to be announced today matters, and so does the message sent about the importance of fiscal sustainability. A rally to 4% for 10Y gilts is a likely outcome but a more difficult question is whether these gains will be sustained. The BoE confirmed this morning its reluctance to engage in more gilt purchases, after buying £19.3 in recent weeks. effectively leaving the chancellor to deal with market turmoil on his own. Meanwhile, market functioning is and will likely remain impaired for a while. Investors will understandably fret about the prospect of BoE gilt sales resuming at the end of the month. Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

A humiliating blow Another turbulent start to the week, albeit a positive one broadly speaking with equity markets around 1% higher in Europe after a decent start to the week in Asia. Since Liz Truss became UK Prime Minister, uneventful days have eluded us and this week has also got off to another hectic start. While the Prime Minister had every intention of making waves in her first weeks in charge, she clearly didn’t anticipate the storm that was brewing and I’m sure she more than anyone at this point would do just about anything for a more peaceful few weeks. Read next: Netflix Stock Price May Tumble Tomorrow! What Can We Expect From NFLX Earnings? | FXMAG.COM Assuming she lasts that long, of course. The u-turn this morning was even more historic than the initial mini-budget. A humiliating moment after a chaotic period for Truss in which confidence in her in the markets, the public and her own party, it seems, has been decimated. That said, we are seeing some improvement from a market perspective. It just took reversing almost all of the unfunded tax cuts to achieve it. Who’d have thought? The job isn’t done yet though, the new Chancellor has done what was necessary now but the harder decisions arguably come later this month in the budget. How low can it go? The yen is continuing to slide against the US dollar, hitting 148.89 this morning and trading beyond the level the country intervened at in 1998 and, of course, last month. We’ve had the usual plethora of commentary from various officials overnight; “high sense of urgency”, “ready to act” etc. It does seem only a matter of time until we get another powerful intervention in the FX markets, it’s just a question of what they’ll do differently this time as doing the same again every few weeks simply isn’t sustainable. The question is whether the yen will surpass 150 against the dollar first. This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. The mother of all U-turns - MarketPulseMarketPulse

There is growing speculation that the UK government will need to cut budget spending further after the fiscal U-turn. We already estimate that the change in the energy price guarantee will cause higher inflation, a deeper recession and may cause the BoE to hike by 75bp rather than 100bp. GBP downside risks persist. Elsewhere, US housing data will be in focus USD: Housing data becoming more relevant The rally in global equities yesterday pushed some high-beta currencies higher: in G10, the New Zealand dollar and Swedish krona had a good day. However, currency-specific stories overshadowed the risk-on environment. GBP fell as markets slowly digest the fiscal U-turn, Norway's krone and Canada's dollar suffered from their elevated exposure to oil prices, where the post-OPEC cuts rally seems to have run out of steam and sub-$90 levels are being explored again. The trade-weighted dollar remains close to its highs, likely being shielded from the equity rally thanks to market expectations of a 75bp Federal Reserve rate hike in November, and a terminal rate priced at 4.90-4.95%. As long as the Fed retains its hawkish stance (we suspect well into 2023), dollar corrections should continue to prove short-lived. Today’s US calendar includes housing starts and building permits data, which will provide hints of how much strain is being put on the housing market from sharply rising mortgage rates. As discussed earlier this week, it appears that most developed central bankers are accepting a contraction in house prices as a necessary evil in the process of fighting inflation. Given the elevated weighting of shelter in the US inflation basket, a (controlled) downturn in house prices would likely mean a faster slowdown in inflation in 2023, and this is good news for the Fed. It’s probably too early anyway to see a material impact on Fed rate expectations from the housing data. The Fed will publish the Beige Book today, and there are a few speakers to keep an eye on: Neel Kashkari, Charles Evans and the arch-hawk James Bullard. We expect a consolidation in the dollar around current levels, and retain a bullish view on the greenback into year-end. Francesco Pesole EUR: Domestic picture remains grim EUR/USD has been stabilising in the 0.98-0.99 area after the rally from 0.9700, likely reflecting some positioning adjustments more than any change in the key drivers. Dollar strength remains the main hindrance to recovery in the pair, but the domestic picture is still far from looking appealing to investors. Despite a smaller-than-expected slump in the ZEW expectations index, the current situation survey plunged dramatically to -72.2 in October. These are levels last seen only in 2020 and 2009. The easing in gas prices is likely preventing a return to the 0.9540 lows, but we think the next round of dollar appreciation will heavily test that support. Today, the eurozone calendar includes the final CPI reading for September, as well as speeches by the ECB’s Francois Villeroy, Mario Centeno and Ignazio Visco. Francesco Pesole GBP: Austerity times? In a matter of days, the UK government has shifted from a large and unfunded expansionary fiscal policy to measures clearly in the direction of fiscal rigour. Chancellor Jeremy Hunt’s policy U-turn earlier this week has paved the way for a radically different policy agenda, and many are now speculating on widespread budget cuts after government offices suggested further savings worth 15% of the budget may need to be found by the government. A key Conservative policy, the hike in state pensions in line with inflation, may be scrapped in what could be the start of a new period of austerity. Just looking at what the government has already changed from the "mini" Budget, the implications for markets are very significant. Our UK economist argues that the U-turn in energy bills cap can add 3pp to inflation next year and should increase the size/length of the recession. We think the Bank of England will need to take this into account and will hike by 75bp rather than the 100bp expected by investors at the November meeting. To be sure, inflation hitting double-digits today (10.1%), with the core rate at 6.5%, makes any dovish surprise a harder sell. Today, Prime Minister Liz Truss will face questions by MPs. There is growing speculation that she will be forced to leave soon due to the loss of credibility and opinion polls currently suggesting the main opposition party (Labour) holding a 35-point lead. GBP/USD has found some tentative stability around 1.13-1.14 as 10-year Gilt yields edged back below 4.0% for the first time in nearly a month. Our rates team remains doubtful that sub-4% levels are sustainable and continues to see elevated risks of Gilt market fragility. A key question is whether the Bank of England will go ahead with planned Gilt sales from the start of November. Yesterday, a media report suggesting another delay in quantitative tightening was dismissed as “inaccurate” by the BoE. We still struggle to see a return to 1.15+ levels in cable, as a combination of political instability, risks of a deeper recession and smaller rate hikes by the BoE along the path of fiscal rigour – along with a strong dollar - may more than offset the benefits of quieter debt-related concerns. It’s too early to dismiss a return to sub-1.10 levels. Francesco Pesole CAD: Inflation to stir rate expectations The Canadian dollar suffered from a contraction in oil prices yesterday, as global demand fears appear to be overshadowing the tighter supply picture following the OPEC+ output cuts. Our commodities team still expects Brent to close the year in the $95-100/bbl range on the back of tighter supply, but downside risks are clearly mounting with global recession fears. We still want to highlight how the Canadian dollar is in a good position to benefit from any recovery in risk sentiment (although that may only materialise from 1Q23 onwards), thanks to Canada’s limited exposure to the two major poles of geopolitical and economic risk: Russia and China. But growing uncertainty about global demand dynamics may further postpone any strong rebound in the loonie. The Bank of Canada will announce policy next week, and we expect a moderation in the tightening pace to 50bp as the economy starts to show signs of slowing and inflation recently came in below expectations. Today, September CPI numbers will be published, and the consensus is centred around a slowdown in headline inflation from 7.0% to 6.7%. With markets currently pricing in 60bp ahead of next week’s meeting, any upside or downside surprise can definitely direct rate expectations towards 50bp or 75bp, and generate CAD volatility in both directions. In our view, the balance of risks appears slightly skewed to the upside for CAD today, but there is still room for USD/CAD appreciation (1.38-1.40) into year-end. Francesco Pesole Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The portion of the UK inflation data showed that the problem is in no hurry to recede. The consumer price index returned to 10.1% y/y, changing hopes that the trend had already reversed. The retail price index is climbing further upwards, reaching 12.6%. The contribution of food to inflation has already exceeded the impact of transport costs. Excluding these volatile components, the acceleration continues, with the core CPI rising to 6.5% compared to 6.3% the previous month. Britain's retail price index at 12.6% y/y was last seen in March 1981. However, producer prices signal an easing of inflationary pressures, albeit not as quickly as previously hoped. Input PPI has slowed to 20% from 20.9% a month earlier and peaked at 24.2% in June. Output PPI inflation slowed to 15.9% after peaking at 17% in July. The persistent downward trend in exchange prices for agricultural and energy products has reinforced disinflationary trends all these months. The higher inflation trajectory is creating pressure on the Bank of England to take even more steps to raise rates. The Bank of England's recent statements about its willingness to move to quantitative tightening from November and its reluctance to stretch out its emergency government bond-buying programme show that the central bank is indeed concerned about inflationary pressures.

As if the political storm hitting the UK was not enough, macroeconomic data is also not encouraging markets, adding pressure to the country's assets. GBPUSD is losing more than 1.4% since the start of the day on Friday, back below 1.1060, losing 2.4% from Thursday's peak on news of Liz Truss stepping down as prime minister. Great Britain retail sales for September were down 1.4%, and down 1.5% excluding fuel, after falling 1.7% a month earlier. Sales were down 10% from their April 2021 peak and 10.7% ex-fuel, having lost for almost the whole of the last year and a half. Falling consumer activity makes it harder for the Bank of England to find a balance sheet. Today's disappointing sales data is a strong case for the monetary dove camp. The weakness in the economy, as seen through the prism of falling sales and industrial production, can deter the Bank of England from raising its key rate more decisively, which is harmful to the Pound. Should GBPUSD fall below 1.09 in the coming days, a retest of the 1.03-1.05 historic low area will be an issue, even though recently it seemed that the worst for the Pound is over.

The pound pushed higher at the start earlier today but has given up all of these gains. GBP/USD is trading at 1.1293, down 0.03%.   Sunak takes over as PM Rushi Sunak has become the new UK Prime Minister after Penny Mordaunt dropped out of the Conservative leadership race. Liz Tross beat Sunak for the leadership last month but her short tenure as Prime Minister was an unmitigated political disaster. Elizabeth Truss’s record of a mere 44 days in office caused financial damage as well, as her financial plan with unfunded tax cuts roiled the markets, with the pound taking a beating and the Bank of England intervening in an emergency move to stabilize the bond market. Sunak, a former finance minister, will have his work cut out. The Conservative party remains deeply divided and will have to coalesce quickly or face a general election that it would likely lose. Sunak inherits a weak economy, high inflation and uncertainty over the UK’s direction in the post-Brexit era. Last week ended on a sour note, as retail sales for September declined by 6.9% YoY, down from -5.6% in August and below the consensus of -5.6%. Core retail sales also dropped sharply to -6.2%, down from -5.3% and well below the consensus of -4.1%. The Bank of England can hopefully concentrate on more routine matters, such as its policy meeting on November 3rd. Inflation has climbed back into double digits and the Bank will have to deliver an oversize interest rate in order to curb inflation. This will slow the economy which may already be in recession. A 0.75% hike is most likely, although a full-point increase is a slight possibility.   GBP/USD Technical 1.1388 and 1.1471 are the next resistance lines 1.1266 is a weak support level. This is followed by 1.1093     This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Pound drifting, Sunak takes over as PM - MarketPulseMarketPulse

Markets and most economists are expecting a 75 basis-point rate hike from the Bank of England on 3 November. But we think a 50bp increase is narrowly more likely. More importantly, we think the Bank Rate is unlikely to go above 4% next year. And that suggests that markets are overestimating the amount of tightening still to come   Shift in UK leadership reduces pressure on the Bank of England   Investors have pared back rate hike expectations, but perhaps not far enough It’s been a wild ride for Bank of England (BoE) expectations since September’s fateful ‘mini budget’. The resulting chaos in financial markets had prompted investors to, at one point, price in more than 150bp worth of tightening by the time of the November meeting. BoE chief economist Huw Pill spoke of the need for a ‘significant’ response. Since then, UK markets have calmed, buoyed by the appointment of Rishi Sunak as prime minister and the steadier backdrop for public finances that is perceived to have ushered in. Markets have drastically scaled back expectations for November’s rate hike and are now pricing less than 75bp. Having previously been among those looking for a 75bp hike, we now think 50bp has become narrowly more likely – though either way the committee is likely to be heavily divided. Consensus expects a 75bp move. 50bp ING's BoE rate hike forecast (vs. 75bp priced) The Bank of England is becoming more vocal about excessive hike expectations It’s becoming increasingly clear that the Bank of England is uncomfortable with the amount of tightening markets are pricing. Investors still expect Bank Rate to peak around 5% next year. In a recent speech, BoE deputy governor Ben Broadbent suggested that GDP would take a near-5% hit over coming years if the Bank were to deliver that sort of tightening. The Bank’s August forecasts – which themselves already pointed to a five-quarter recession – were based on a much lower terminal rate of roughly 3%. Citing a simple model, Broadbent suggests recent fiscal announcements warrant ‘only’ an extra 75bp of tightening on top of that. It’s important not to take this too literally, but it’s nevertheless compatible with our long-standing view that Bank Rate is unlikely to go above 4%. Even Catherine Mann, one of the most hawkish committee members, was quoted saying recently that markets are “too aggressively priced”. That frames the messaging we can expect from Thursday’s meeting. The new set of forecasts due, which crucially are based on market interest rate expectations, are likely to be dismal – showing both a deep recession and inflation falling below target in the medium-term. That should be read as a not-so-subtle hint that market pricing is inconsistent with achieving its inflation goal. Markets still expect Bank Rate to peak close to 5% next year Source: Macrobond, ING Sky-high mortgage rates likely to outweigh concerns about a weaker pound The obvious counter-point here is that the Bank’s forecasts have been sending this signal for much of this year – and the Bank hasn’t made much of an effort to otherwise talk down market expectations. Partly that's been because of mounting concerns about a weaker pound, and partly because of growing caution about the accuracy of forecasts as inflation has consistently outpaced expectations. But this calculation is now changing. Not only does it look like inflation is close to peaking, but the risk of overdoing it with rate hikes is growing. Two-year mortgage rates hit 6.5% this month, and despite a fall in swap rates since the abolition of the 'mini budget', we suspect they’ll stay pretty high. Especially for high loan-to-value, lenders will either keep mortgage products off the market or build in more of a premium given the mounting risk of a house price correction. On a similar note, the Bank of England’s financial policy arm has also warned that small and medium-sized businesses are vulnerable given their heavier reliance on floating-rate borrowing. Given the choice of hiking aggressively and baking in – or even pushing up – these borrowing costs, or tightening more cautiously and risking a weaker pound, we suspect most policymakers will lean towards the latter. Inflation is close to a peak, though could stay 2-3pp higher from April 2023 if energy support becomes less generous Source: Macrobond, ING Five reasons for a 50bp rate hike Admittedly none of what we’ve said so far necessarily precludes the central bank from hiking by 75bp on Thursday. Policymakers may feel the bank needs to reassert its authority after a chaotic few weeks. But here are five reasons why we think the committee will lean towards a smaller move: 1   First, the fact that we’re essentially back to square one on the mini-budget also reduces the pressure for a jumbo hike. Admittedly the Bank finds itself in the awkward position of not knowing the full details of PM Sunak’s rewrite of the Medium-term Fiscal Plan. But the most consequential government action for the economic outlook has always been the Energy Price Guarantee, the cap the government has placed on consumer and business energy costs. This had already been announced well before the Bank of England’s September meeting, where the committee resisted pressure to hike by 75bp. Indeed, we have since learned that the government has committed to making its energy support less generous (albeit we don't yet know how this will work). In short, and with the notable exception of the cut in National Insurance, the expected boost from fiscal policy is similar to what was expected before September’s meeting.  2   Second, the economic dataflow doesn't provide a clear enough justification for more aggressive tightening. It's certainly true that the Bank's own surveys continue to point to chronic staff shortages and wage pressures, and this remains a key concern for the BoE. But the most recent inflation data was mostly as expected, while activity data has clearly deteriorated.  3   Third, trade-weighted sterling is actually now stronger than it was at the time of the September meeting. Concerns about depreciation we'd been seeing through the summer will have been a factor in the decision of three committee members to vote for 75bp at the last meeting. The latest market moves should alleviate some of these concerns at the margin. 4   Fourth, the Bank will be acutely aware that hiking by 75bp sets a precedent – it risks becoming viewed as the default move by investors, having only hiked in 50bp increments until now. At a time when the Bank is trying to talk down market rate expectations, that’s not ideal. With economic risks growing, the BoE will want to retain some optionality for future meetings. Policymakers have also shown on more than one occasion now that they don’t feel pressured into a big move by what other central banks are doing. We’d therefore caution against assuming the BoE will hike by 75bp, just because that’s what the Fed and more recently the ECB have opted to do. 5   Finally, the committee is divided. While three members voted for a 75bp hike in September, one rate-setter – Swati Dhingra – voted for just 25bp. We think other committee members will remain reluctant to step up the pace of rate rises this late into its hiking cycle. That potentially heralds another three-way-vote-split on the committee on Thursday. Read this article on THINK TagsBank of England Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Analysis of Friday's deals: 30M chart of the GBP/USD pair     The GBP/USD pair tried to continue its downward movement on Friday after settling below the trend line, however, the upward movement resumed in the afternoon, so at the moment it is not at all obvious that the pound will start to fall. We have repeatedly said before that the British currency has a greater chance of growth than the euro. In reality, this is exactly what happens. The euro was flat on Friday, and the pound rose by the end of the day. The pound moved away from its annual lows by 1,300 points, and the euro - by only 550. There were no important events and reports in the UK on Friday, just like last week. Thus, there was practically nothing for traders to react to, except for several reports in the US, which turned out to be as neutral as possible. However, during the day the volatility was about 120 points, which is neither too much nor too little. The pound has accustomed us to high volatility in recent weeks, so 120 points now looks undignified. In general, even considering that the pound and the euro are unlikely to move radically differently, we believe that the British currency is more likely to continue to grow. 5M chart of the GBP/USD pair     You can clearly see on the 5-minute timeframe that there was no pronounced flat on Friday. Quotes, of course, for quite a long time were near the level of 1.1550, but still moved in a more trendy manner. The first sell signal was formed at the beginning of the European trading session, when the price settled below 1.1550. After that, it passed about 30 points down, which allowed beginners to set Stop Loss to breakeven, at which the position was closed. The second buy signal also turned out to be false, and the price could not even go up 20 points. Therefore, there was a small loss here. Since the first two signals turned out to be false, all the subsequent signals around the same level of 1.1550 should not have been worked out. As a result, the day ended with a minimal loss. It's okay. How to trade on Monday: The pound/dollar pair has overcome the ascending trend line on the 30-minute time frame, but has not yet been able to continue moving down. It is possible that the upward trend will continue, and the trend line will again have to be rebuilt. Next week the meetings of the Bank of England and the Federal Reserve will take place, so the pair can "fly" from side to side and show the highest volatility. On the 5-minute TF tomorrow it is recommended to trade at the levels 1.1356, 1.1443, 1.1479, 1.1550, 1.1608, 1.1648, 1.1716, 1.1755, 1.1793, 1.1863- 1.1877. When the price passes after opening a position in the right direction for 20 points, Stop Loss should be set to breakeven. There are no important events scheduled for Monday in the UK, and the calendar of events in the US is also empty. However, a little later in the week there will be very important events that the market can start working out in advance. Basic rules of the trading system: 1) The signal strength is calculated by the time it took to form the signal (bounce or overcome the level). The less time it took, the stronger the signal. 2) If two or more positions were opened near a certain level based on false signals (which did not trigger Take Profit or the nearest target level), then all subsequent signals from this level should be ignored. 3) In a flat, any pair can form a lot of false signals or not form them at all. But in any case, at the first signs of a flat, it is better to stop trading. 4) Trade positions are opened in the time period between the beginning of the European session and until the middle of the US one, when all positions must be closed manually. 5) On the 30-minute TF, using signals from the MACD indicator, you can trade only if there is good volatility and a trend, which is confirmed by a trend line or a trend channel. 6) If two levels are located too close to each other (from 5 to 15 points), then they should be considered as an area of support or resistance. On the chart: Support and Resistance Levels are the Levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels. Red lines are the channels or trend lines that display the current trend and show in which direction it is better to trade now. The MACD indicator (14,22,3) consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend lines (channels and trend lines). Important speeches and reports (always contained in the news calendar) can greatly influence the movement of a currency pair. Therefore, during their exit, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time. Relevance up to 07:00 2022-10-31 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/325704

Thursday 03 November A public holiday in Japan. Japanese banks and exchanges will be closed, and trading volumes during the Asian trading session will be reduced. Australia. Trade balance This indicator evaluates the difference in the volume of exports and imports. The excess of exports over imports leads to a trade surplus, which has a positive impact on the national currency quotes. A decrease in the trade balance surplus may have a negative impact on the quotes of the national currency. Conversely, the growth of the trade surplus is a positive factor. Previous values (in billion Australian dollars): 8.324 (August), 8.733 (July), 17.670 (June), 15.016 (May), 13.248 (April), 9.738 (March), 7.437 (February), 11.786 (January). The level of influence on the markets is from low to medium. UK. Composite PMI and Services PMI (final release) The UK Composite PMI (from S&P Global) is an important indicator of the health of the UK economy. If the data turns out to be worse than the forecast and the previous value, then the pound is likely to fall sharply in the short term. Data better than the forecast and the previous value will have a positive impact on the pound. At the same time, a result above 50 is considered positive and strengthens the GBP, below 50 is considered negative for the GBP. Previous values: 49.1, 49.6, 52.1, 53.7, 53.1, 58.2, 60.9, 59.9, 54.2 (in January 2022). The preliminary score was 47.2. The level of influence on the markets (final release) is from low to medium. The PMI in the UK services sector (S&P Global) is an important indicator of the state of the British economy. The service sector employs the majority of the UK's working-age population and contributes approximately 75% of GDP. The most important part of the service industry is still financial services. If the data turns out to be worse than the forecast and the previous value, then the pound is likely to fall sharply in the short term. Data better than the forecast and the previous value will have a positive impact on the pound. At the same time, a result above 50 is considered positive and strengthens the GBP, below 50 is considered negative for the GBP. Previous values: 50.0, 50.9, 52.6, 54.3, 53.4, 58.9, 62.6, 60.5, 54.1 (in January 2022). The preliminary score was 47.5. The level of influence on the markets (final release) is from low to medium. UK. BoE interest rate decision. Minutes of the BoE meeting. The planned volume of asset purchases by the BoE. Monetary Policy Report The level of interest rates is the most important factor in assessing the value of a currency. Most other economic indicators are only looked at by investors to predict how rates will move in the future. It is possible that at this meeting the BoE will again raise the interest rate (up to 2.75% - 3.00%). However, despite the positive macro data coming out of the UK, the interest rate may remain at the same level of 2.25%, which could cause the pound to weaken. The minutes of the Monetary Policy Committee (MPC) of the BoE contain information on the distribution of votes "for" and "against" the increase/decrease in the interest rate. The report of the BoE on monetary policy, which will also be published at the same time, contains an assessment of the economic situation, the outlook for the economy and inflation. The soft tone of the report will help weaken the pound. Conversely, the tough rhetoric of the report regarding inflation, which implies a further increase in the interest rate, will cause the pound to strengthen. The level of influence on the markets is high. USA. Unemployment claims The US Department of Labor will publish a weekly report on the state of the US labor market with data on the number of primary and secondary claims for unemployment benefits. The state of the labor market (together with data on GDP and inflation) is a key indicator for the Fed in determining the parameters of its monetary policy. The result is higher than expected and the growth of the indicator indicates the weakness of the labor market, which negatively affects the US dollar. The drop in the indicator and its low value is a sign of the recovery of the labor market and may have a short-term positive impact on the USD. Initial and re-claims are expected to remain at pre-coronavirus lows, which is also positive for the dollar, indicating the stability of the US labor market. Previous (weekly) figures for initial jobless claims: 217,000, 222,000, 228,000, 237,000, 245,000, 252,000, 248,000, 254,000, 261,000, 244,000, 235,000, 231,000, 232,000, 202,000, 211,000 Previous (weekly) values for repeated claims for unemployment benefits: 1,438,000, 1,473,000, 1,437,000, 1,412,000, 1,434,000, 1,430,000, 1,420,000, 1,368,000, 1,384,000, 1,333,000, 1,372,000, 1,324,000, 1,331,000, 1,309,000, 1,309,000 The level of influence on the markets is medium to high. UK. Speech by BoE Governor Andrew Bailey As head of the central bank, Bailey has more influence on the British pound than any other person in the UK government. Market participants will closely follow the progress of his speech to better understand the prospects for the monetary policy of the BoE. Volatility during a speech by the head of the BoE usually rises sharply in the quotes of the pound and the FTSE London Stock Exchange index if it gives any hints of tightening or easing monetary policy of the BoE. If Bailey does not touch upon the topic of monetary policy, then the market reaction to his speech will be weak. The level of influence on the markets is from low to high. USA. Indices (from S&P Global) business activity (PMI): composite and in the service sector of the economy (final release) The monthly S&P Global report publishes (among other data) a composite PMI index and PMI indices in the manufacturing sector and in the services sector of the US economy, which are an important indicator of the state of these sectors and the US economy as a whole. A result above 50 is considered positive and strengthens the USD, below 50 is considered negative for the US dollar. The data above the value of 50 indicate an acceleration of activity, which has a positive effect on the quotes of the national currency. If the indicator falls below the forecast and, especially, below the value of 50, the dollar may sharply weaken in the short term. Previous values of the PMI indicator: -composite 49.5, 44.6, 47.7, 52.3, 53.6, 56.0; - in the service sector 49.3, 43.7, 47.3, 52.7, 53.4, 55.6. The level of influence on the markets (final release) is medium. It is also lower than the similar report from ISM (American Institute of Supply Management) USA. PMI in the services sector of the economy (from ISM, Institute of Supply Management) The ISM Index is the result of a monthly survey of the largest US companies from 62 segments of the service sector, which accounts for almost 90% of US GDP and about 80% of the country's working citizens. Previous values: 56.7 in September, 56.9 in August, 56.7 in July, 55.3 in June, 55.9 in May, 57.1 in April, 58.3 in March, 56.5 in February , 59.9 in January. Forecast for October: 56.0. This is a high figure. A result above 50 indicates an increase in activity and is seen as a positive factor for the USD. However, a stronger relative decline in the index could negatively impact the dollar in the short term. The level of influence on the markets is medium to high. Relevance up to 10:00 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/325632

Thursday's Bank of England meeting has become a close call, and we now narrowly favour a 50bp rate hike. That would be a surprise for markets, sending gilt yields lower and driving GBP/USD back towards 1.14   Shift in UK leadership reduces pressure on the Bank of England   Four scenarios for the Bank of England meeting Forecasts based on spot rates as of 31 October. GBP/USD at 1.1560 and 10Y yields at 3.50 Source: ING We narrowly expect a 50bp rate hike this week Judging by recent comments, it’s increasingly clear that the Bank of England is uncomfortable with the amount of tightening priced into financial markets over coming months. Investors expect Bank Rate to peak just shy of 5% next year (from 2.25% currently). That leaves two potential options for Thursday’s meeting. Firstly, the BoE could validate market expectations and hike by 75bp for the first time in this tightening cycle, but signal clearly that it’s likely to be a one-off. That’s the consensus view among economists. Alternatively, the Bank could hike by 50bp, as it did in September, but continue to signal that it is prepared to hike forcefully if required. We now narrowly think this is the more likely outcome, though in either scenario the committee is likely to be highly divided. Read our preview for more detail on our thinking. The central message though, be it via the vote split, the new forecasts or the language in the policy statement, is that markets are overestimating the scope for future rate hikes. Our own view is that Bank Rate is unlikely to go above 4%. Regardless of whether we get a 50bp or 75bp hike this week, we think we’ll get a 50bp hike in December and another 25 (or perhaps 50bp) move in February before the Bank pauses. Six reasons why the BoE could hike by 50bp this week Source: ING Gilts: re-steepening on a 50bp hike For gilts, and by extension sterling-denominated rates, all of the good fiscal news is already in the price. Granted, larger windfall taxes could help close the ‘political risk premium’ that opened against euro and dollar rates in September. This is likely to be balanced by the reduced sense of urgency that the government potentially feels in implementing unpopular fiscal tightening, now that markets have calmed down somewhat. In short, we think fiscal risks are now reduced, and roughly balanced. The focus is instead squarely on the BoE meeting, especially since the 31 October budget has been delayed. A 50bp call by the BoE would be a powerful signal that it doesn’t intend to bow to market pressure for aggressive tightening. There is a risk to this strategy, however. Markets have consistently priced a more hawkish path than the BoE has signalled ever since the start of this tightening cycle last year, so the BoE faces an uphill battle to convince them that smaller increments are the correct approach. A 50bp call by the BoE would be a powerful signal that it doesn’t intend to bow to market pressure Despite this risk, we expect a bullish reaction in gilts. The move would be a hint of a less hawkish BoE reaction function but this is likely to be balanced by greater term and inflation premia baked into longer-dated yields. The gilt rally into this meeting already incorporates decent dovish expectations so a 50bp hike would allow gilts to consolidate their gains below 3.5%, though they will struggle to make more headway towards lower yields. A more noticeable reaction would be a re-steepening of the curve on the lower BoE path at the short end and greater inflation premia at the long end. GBP: A 50bp rate hike would weigh on the currency Sterling continues to trade with high volatility in the FX options market, which prices a 150 pip GBP/USD range for Thursday. As per the scenario analysis table, we believe the disappointment of a 50bp rate hike would send GBP/USD back down to the 1.1400 region this week. Providing some backing to this view is the external environment, where we think the balance of risks favour a stronger dollar. Plus, tighter liquidity conditions around the world will typically weigh on currencies like sterling, with large external funding needs. A GBP/USD rally from here requires a soft dollar environment, the Sunak government credibly filling the £35bn funding gap at the 17 November Autumn statement, and the BoE pushing ahead with a more aggressive tightening cycle. We think the combination of all three is unlikely.   Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

There is a growing (USD-positive) divergence between the Fed – which delivered only a 'timid' dovish pivot – and other major central banks. Yesterday, the Bank of England pushed back against market pricing as it hiked by 75bp, following dovish turns in Norway, Canada and Australia. Today's US payrolls may come in above 200k, adding fuel to the USD rally Today's US payroll figures may add fuel to the dollar rally USD: Payrolls can keep Fed away from pivot The dollar has retained very good momentum in the aftermath of the FOMC announcement on Wednesday, with markets continuing to push their Fed peak rate expectations higher. Fed Funds futures for the March 2023 meeting are currently trading in the 5.10/5.20% region, a clear testament to how markets have not bought into any dovish pivot narrative.  This is particularly relevant for FX given the growing divergence between the Fed and other major central banks. Yesterday, the Bank of England and Norges Bank both surprised on the dovish side, and so did the Bank of Canada and the RBA a few days ago. There's a growing perceived chance that the Fed will be the last major central bank to throw in the towel and arrest its tightening cycle, and we think this notion can provide quite sustainable support to the dollar into the new year.  Today, the focus will shift back to data as US October payrolls are released. Our US economist sees room for a slightly above-consensus headline read (220k vs a conservative 195k), which should overshadow the widely expected 0.1% increase in the unemployment rate and marginal slowdown in wage growth. We expect today's release to leave markets still searching for a higher Fed terminal rate, ultimately keeping the dollar bid. A decisive break above 113.00 in DXY appears on the cards: if not today, probably in the coming days.  Francesco Pesole  EUR: Caught in the crossfire EUR/USD remains primarily a function of dollar moves, and today's US payrolls release should continue to put pressure on the pair in our view. Having now moved back to the trading ranges seen before the late-October correction (which has proven exceptionally short-lived), we think markets have switched back to a more structurally bearish tone on EUR/USD, and a return to 0.9500 is our base case in the near term. Domestically, markets will keep an eye on ECB president Christine Lagarde's comments this morning. With the OIS curve currently embedding 60bp of tightening at the ECB December meeting, there is surely room for speculation in either direction on the size of the next hike. From an FX perspective, the implications for the euro have been quite limited, and we doubt this will change drastically in the very near term.  Francesco Pesole  GBP: A very dovish hike We had highlighted downside risks for sterling as we approached yesterday's Bank of England (BoE) announcement. Our call was for a 50bp dovish surprise, and while the BoE hiked by 75bp, it seemed to tweak the policy message to the dovish side as much as reasonably possible, ultimately triggering a GBP reaction (-1.5% vs USD) quite similar to what we would have seen if it only hiked by 50bp.  As discussed in our BoE review note, the Bank pushed back quite firmly against what markets were previously pricing in terms of tightening (i.e. a 5% peak rate), adding in its forecasts that following the market-implied rate path could cause a three percentage point economic contraction over several quarters and inflation at zero in 2025. The bottom line is that the BoE is essentially shutting the door to another 75bp, and we expect a 50bp hike in December.  The negative reaction in the pound was – in our view – not just due to the dovish repricing in rate expectations, but also a re-connection of FX dynamics with the rather concerning domestic economic outlook, which was flagged quite clearly by the BoE. The fiscal rigour brought by the new UK government may have already had a beneficial effect on the pound, and now the size of the current UK recession may become a primary currency driver. Indeed, the downside risks are still quite significant, and next week's GDP numbers will surely be watched quite closely: consensus is currently around a 0.4% quarter-on-quarter contraction.  Today, BoE chief economist Huw Pill will deliver some remarks, but there are no other key events to monitor in the UK. Risks are skewed towards a re-test of 1.1000 in cable over the next few days, with today's US payrolls possibly adding pressure on the pair. Francesco Pesole  CEE: Speaking of selloffs... As expected, the Czech National Bank (CNB) left interest rates unchanged at 7.00% today, in line with surveys and market expectations. In a statement, the phrase "...the CNB will continue to prevent excessive fluctuations of the koruna exchange rate" returned after a hiatus in September. If we are looking for a surprise at this meeting we can find it in the new forecast, which has undergone a significant transformation. Overall, the CNB forecasts slower economic growth, including a recession next year and lower inflation, alongside a massive tightening of monetary conditions. However, despite the big changes in the CNB's forecast, nothing has changed in our view of the main story yesterday. The board considers interest rates high enough and FX interventions are doing their job well with no end in sight for now. Thus, we continue to see the risk of additional rate hikes as low and consider the hiking cycle to be closed, the only one in the CEE region. On the FX side, the situation remains unchanged. CNB interventions will continue and the line in the sand is clearly drawn at 24.60-70 EUR/CZK. Given the low central bank costs, we do not expect any changes in the CNB's approach anytime soon. This setup coupled with relatively high carry may serve as a good base against the Polish zloty or Hungarian forint, which are much more vulnerable in global emerging market selloffs especially ahead of the upcoming winter. And speaking of selloffs, the CEE region, surprisingly for us, remains stable despite global conditions deteriorating further. EUR/USD passed another milestone on the way lower again yesterday, the selloff in equity markets clearly indicates a risk-off mood and gas prices also cannot deliver much optimism. Thus, despite the resilience in the region, we continue to believe that the current strong levels are not sustainable. Next week we have a heavy calendar including a National Bank of Poland meeting and CPI prints across the region which we believe can easily serve as a selloff trigger. At the moment, we see room for a move higher in the Polish zloty towards 4.75 EUR/PLN and the Hungarian forint towards 415 EUR/HUF. Frantisek Taborsky Read this article on THINK TagsUS dollar Payrolls FX Federal Reserve Bank of England Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The dollar long squeeze on Friday was likely triggered by optimism on China's Covid rules. We suspect this is too premature, and macro factors continue to point to dollar strength. But there are two key risk events for the dollar this week: US CPI (we expect a 0.5% MoM core reading) and mid-term elections (Biden losing control of Congress may be a USD negative) USD: Room for recovery, but watch for the mid-terms Last week was a hectic one in FX. Fed Chair Jerome Powell’s hawkish press conference left markets searching for an even higher peak rate (currently at 5.1%) and highlighted the divergence between the still hawkish Fed and the growing list of developed central banks that are turning more cautious on tightening (Bank of England, Bank of Canada, Reserve Bank of Australia, Norges Bank). This was a clear bullish narrative for the dollar, which was well supported until Friday when optimism in risk assets triggered some heavy position-squaring on dollar longs. A key risk-on driver on Friday was the apparent loosening of Covid restrictions in China. Indeed, China’s economic woes have been a major factor weighing on global sentiment in recent months. However, a larger relief rally appears a bit premature. First, because the course of Beijing’s health policy has been very hard to interpret, and Chinese officials have already pushed back against any speculation they will drop the zero-Covid policy. Second, this morning’s drop in Chinese exports is yet another signal that slowing global demand is a major drag on Chinese growth. Third, China has been only one factor in the negative risk equation: the search for a higher Fed peak rate and elevated uncertainty around the medium-term economic outlook and energy crisis should keep a cap on risk assets for longer – and ultimately may still favour defensive trades like long dollar positions. The dollar correction that started in late October was fully unwound in about a week, and this indicated – in our view – how macro factors continue to favour dollar strength and the corrections are mostly related to position-squeezing events. We, therefore, expect a re-appreciation of the dollar in the near term, although there are two major risk events to watch this week in the US: the CPI report and mid-term elections. Our US economist expects inflation numbers this week to be important, but not critical for future policy action by the Fed. Most of the focus will be on the monthly change in core CPI, which we expect to come in at 0.5%, in line with consensus. That would indicate further resilience in underlying price pressures and may prevent markets from completely discarding another 75bp hike in December, ultimately offering the dollar a floor. Below-consensus readings may force a dovish re-pricing in rate expectations though. When it comes to the US mid-term elections, we discussed the scenarios and market implications in this article. The bigger downside risk for the dollar is that the Republicans secure control of both the House and the Senate, which would imply a hamstrung administration unable to deliver fiscal support in a downturn. A split Congress (House control going to the Republicans) may be mostly priced in, and the implications for the dollar could be relatively limited. We expect more FX volatility this week, but retain a near-term bullish USD bias and expect DXY to climb back above 113.00 in the coming weeks. Today’s calendar in the US only includes speeches by Fed’s Loretta Mester and Tom Barkin. Francesco Pesole EUR: China's push looks premature Europe’s elevated exposure to the China growth story means that the euro should benefit from speculation that Beijing will loosen Covid restrictions. As discussed in the USD section above, this appears premature speculation, and Chinese growth is still facing the grim prospect of slowing global demand. In line with our view that the dollar should recover in the near term, we don’t think EUR/USD will be able to climb back above parity on a sustainable basis – even though the two risk events this week (US CPI and mid-term elections) could trigger another USD long squeeze. There are not many key data releases in the eurozone this week, and most focus will be on European Central Bank speakers. A pre-registered video of Christine Lagarde on the digital euro will be released this morning, and we’ll hear from Fabio Panetta later today. There are a plethora of other speakers during the week, but the direct impact of expected ECB policy on the euro looks set to remain rather contained. Francesco Pesole GBP: In an uneasy position Despite the dollar’s correction on Friday, the pound still has to fully recover from the post-Bank of England blow. Indeed, the combination of a highly concerning economic outlook and a forced dovish repricing in rate expectations look set to keep the pound rather unattractive. This week, 3Q growth figures are the highlight in the UK calendar, and our economist forecasts a 0.5% quarter-on-quarter contraction, which should all but endorse the BoE’s more cautious approach. There are a few MPC members speaking this week, including Chief Economist Huw Pill and Silvana Tenreyro, the latter having voted for a 25bp hike last Thursday. Cable may be primarily driven by dollar moves this week, but EUR/GBP could extend gains to the 0.8850/70 area. Francesco Pesole CEE: Local story replaces global factors We have another heavy week ahead in the Central and Eastern European region. Today, we start with industrial production in the Czech Republic, where PMIs show a steep decline in production at the end of the year. Tomorrow, in addition to retail sales and industrial production in Hungary, we will see the Romanian central bank's last meeting of the year. We expect a slowdown in the tightening pace to 50bp to 6.75%, in line with market expectations, which could be the last hike in this cycle. But an additional 25bp hike cannot be ruled out in January. Hungarian inflation for October will be published on Wednesday. We expect another jump from 20.1% to 21.0% YoY. Also, on Wednesday we will see the Polish central bank meeting. Our call is for a 25bp hike to 7.00%, but no change will also be on the table, in our view. Thursday will see the release of October inflation in the Czech Republic. We expect only a slight increase from 18.0% to 18.2% YoY, slightly above market expectations, but the risk is new government measures and the approach of the statistical office. Then on Friday, we will finish the series of October inflation prints in Romania, where we expect a slowdown from 15.9% to 15.2% YoY, slightly below market expectations. In the FX market, surprisingly for us, CEE has survived tough weeks which have seen ECB and Fed rate hikes, a stronger dollar and gas prices at higher levels. This week, the local story will come into play. EUR/USD and gas prices are back to more CEE FX-friendly levels, which should be positive for the region in the first half of the week. On the other hand, interest rate differentials are still pointing to weaker FX in the region, and central bank decisions and CPI readings (except in Hungary) support a rather dovish mood, which is negative for FX. From this perspective, we see the Polish zloty as most vulnerable at the moment, which should suffer from the central bank's dovish decision. Moreover, the cost of funding has fallen from its peak in recent days, making shorting less expensive. Thus, we see the zloty closer to 4.750 EUR/PLN in the second half of the week. The Hungarian forint shows the biggest gap in our models at the moment against a weaker interest rate differential. However, higher inflation should again support market expectations and hold the forint slightly above 400 EUR/HUF. The Czech koruna reached its strongest levels since August after the Czech National Bank meeting and is benefiting from temporary short position liquidation. However, we see its value rather closer to 24.50 EUR/CZK. The Romanian leu is down from NBR intervention levels and is closely following global sentiment. Therefore, we expect it to remain below 4.90 EUR/RON for longer. Frantisek Taborsky Read this article on THINK Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The British pound has soared today, following the US inflation report. GBP/USD is trading at 1.1661, up a massive 2.7%. US dollar retreats as inflation falls The October inflation report was lower than what everyone had expected, which has triggered strong volatility in the currency markets. The US dollar is sharply lower against the majors, as the markets are expecting the Fed to ease up on interest rates after today’s favourable inflation data. Headline CPI dropped to 7.7%, down from 8.2% in September and below the consensus of 8.0%. Core inflation slowed to 6.3%, down from 6.6% and lower than the forecast of 6.5%. The surprisingly low numbers have turned rate pricing on its head. Prior to the inflation release, the markets had priced in 55% for a 50 bp increase and 45% for a 75 bp hike. This has changed to 80-20 in favor of a 50 bp hike, which has sent the US dollar into a broad retreat. The Fed may end up delivering a 50 bp move in December, but investors should remind themselves that this doesn’t mean the Fed is going soft. It wasn’t too long ago that a 0.50% hike was considered ‘supersize’; it’s only in comparison to 0.75% or full-point moves that a 0.50% increase can be considered dovish. Secondly, Fed Chair Powell said at last month’s meeting that the terminal rate would be higher than previously expected, a clear sign that the Fed remains hawkish. The UK releases key data on Friday, and the markets are braced for soft readings. GDP for the third quarter is expected to slow to -0.5% QoQ, down from 0.2% in the second quarter. Manufacturing Production for September is expected at -0.4%, which would mark the third decline in four months. If these releases are weaker than expected, the pound could give back some of today’s huge gains. GBP/USD Technical There is resistance at 1.1767 and 1.1844 1.1609 and 1.1505 and providing support This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. GBP/USD rockets as US inflation dips - MarketPulseMarketPulse

Crypto markets attempt to recover despite widespread panic   The panic surrounding the crypto market continues this week after further developments regarding the FTX situation led to a widespread uncertainty involving the whole sector with many now questioning the safety of other major exchanges and defi protocols. Many large institutions rushed to reassure their customers, investors and market as a whole of their financial positions after major doubts emerged following the FTX collapse. Understandably, the Crypto fear and greed index is signaling levels of extreme fear as a large outflux of coins and cash from exchanges is threatening the stability of the ecosystem even further. Major price swings, spiky volatility and projects approaching collapse are all factors causing an outflow of capital from the ecosystem as the overall market cap hovers around $844 billion while major crypto currencies like Bitcoin and Ethereum attempt to hold above their key supports. While there is a high potential for unexpected developments and high volatility, some investors may take the fact that BTC and ETH stabilized slightly as a reassuring sign, at least in the short term. On the other hand, confidence in the crypto industry is likely hovering around historic lows as many who may have been supporters have begun to doubt their conviction as they see companies that may have seemed too big to fail crumble almost overnight leaving investors and customers to deal with the aftermath.    Pound pulls back from highest level since August   The pound has managed to pull off an impressive recovery since the beginning of November with the GBPUSD pair rising over 6% and reaching a high of 1.185, a level not seen since the end of August. This came as the USD started to retreat following macroeconomic reports supporting a slightly less hawkish approach by the FED and as the recently appointed British PM attempted to calm investor sentiment after his predecessor. Today we can see a fairly balanced situation in the FX market with both USD and GBP performing strongly and with the pair pulling back slightly as it trades around 1.177. Many will be focused on the G20 taking place this week as progress on the geopolitical front may also help with improving sentiment while Sunak remains under pressure with regards to taxes, cuts and migrants. From a technical perspective, the GBPUSD pair is trading at an interesting price reaction area after encountering resistance and pulling back almost 1% and breaking below the 21SMA on the hourly chart. As the sentiment surrounding the pound remains uncertain, any major developments may cause large volatility spikes that could cause a breakout from the short term trading range.

Markets have calmed in recent weeks which has allowed the Chancellor to push back some of the fiscal pain, particularly on public spending. The result is elevated borrowing in the near term, but the impact on UK growth isn't necessarily huge. Still, with energy support becoming less generous, the Bank of England can afford to hike more gradually Chancellor Jeremy Hunt leaves 11 Downing Street to present the Autumn Statement Has the government done enough to calm markets? This is a much less pertinent question than it was a few weeks ago. The change in political management, relentless leaks of possible austerity measures, and an end to the liability-driven investment (LDI) pension crisis have all contributed to calmer markets and a narrower risk premium in UK assets. Investors have also bet that a tighter budget will lessen pressure on the Bank of England to increase rates. That is perhaps an exaggeration, but the combination of these factors helped 10-year government bond yields fall from 4.5% to 3.25% in the run-up to today's Budget. But this logic was still contingent on Chancellor Jeremy Hunt presenting a plan which saw debt stabilise as a percentage of GDP in the medium-term – and the Office for Budget Responsibility has confirmed this will be the case by the fiscal year 2027/28. But the story is a little more complex than that, and the reality is the Chancellor faced a trade-off between boosting credibility by presenting immediate plans to reduce borrowing and avoiding amplifying the forthcoming recession. If anything, the Chancellor is leaning more towards the second of those priorities, in that much of the pain – particularly in terms of tighter government spending – won’t kick in for a couple of years. Public sector net investment rises to 3% of GDP next year but then falls back to 2.2% in five years’ time. The result is that borrowing is still elevated over the next couple of years, to the extent that gilt issuance plans have actually increased for the next fiscal year. Taking the Debt Management Office’s forecast 2023-24 remit of £305bn, and the BoE’s quantitative tightening programme, we estimate that private investors will be required to increase their gilt exposure by at least £268bn in FY2023-24. The previous peak was £107bn in FY2020-21. Gilt markets may be calmer, but there’s still plenty of supply for private investors to absorb – and a lot rests on delayed pain coming through in the public finances later this decade. For now, though, sterling has taken the Autumn Statement in its stride, barely changing against the euro and slightly softening against today’s modest dollar recovery. The lack of reaction will be down to the well-flagged measures from the new government, although the currency market might once again be keeping one eye on the slight softness in the gilt market today. Our baseline view sees GBP/USD dipping below 1.15 after the current bout of position adjustment has run its course, while we also favour some modest underperformance against the euro. EUR/GBP could be trading back to 0.89 by year-end. Energy support is becoming less generous Source: Ofgem, Refinitiv, ING calculations The impact on the economy and inflation The fact that a fair chunk of the pain has been delayed means that the economic impact of the Autumn Statement on next year’s growth isn’t necessarily huge – or at least not compared to expectations. A lot of the near-term tax rises are also either concentrated on higher-income earners or energy companies – and remember that the national insurance cut implemented under former Prime Minister Liz Truss hasn't been reversed. That said, the major change is that the average household will see energy bills fixed at £3,000 a year from April, up from £2,500 previously promised. That’s still slightly more generous than would otherwise be implied by wholesale gas/electricity futures, but not by much. We estimate that, without government intervention, the average energy bill would be £3,200 in FY2023, and that reflects the big fall in prices we’ve seen since August. Interestingly, even though the Chancellor has committed to supporting households for another 12 months beyond April, we estimate that energy bills will actually fall below £3,000 on an annualised basis by the first quarter of 2024 if wholesale prices stay where they are. Admittedly that's a big "if", and the risk for the Treasury is that they increase once more, particularly for futures covering the winter of 2023/24, pushing up the cost of support – albeit this is somewhat mitigated by a widened windfall tax that will now cover renewable electricity generators. For the economy, the important point is that households will be paying a little over 8% of disposable incomes for energy in FY2023, from 7% under the original guarantee, by our estimates. However, this is before considering new payments for low-income households, which will help cushion the blow. We’re forecasting a recession with a cumulative hit to GDP of roughly 2% by the middle of next year, and expect overall 2023 GDP to fall by 1.2%. The decision on energy prices lifts our inflation forecasts by roughly one percentage point from April next year. UK inflation will be roughly 1pp higher after April Source: Macrobond, ING The impact on the Bank of England The reality is there’s not much in the Autumn Statement to cause any earthshattering changes to the Bank of England’s view that it unveiled at the November meeting. The BoE's forecasts, which envisaged recession with or without further rate hikes, were premised on some withdrawal of energy support. The assumptions it made at the time are not wildly different from what has been announced today. As a result, we think the November 75bp rate hike will probably prove to be a one-off. Admittedly, some hawkish surprises in this week’s inflation data, and signs of ongoing worker shortages, suggest the Bank’s work isn’t finished yet. But we think the committee will pivot back to a 50bp hike in December and either 25bp or 50bp in February, seeing the Bank Rate peak around 4%. Read this article on THINK TagsUK fiscal policy Inflation Bank of England Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The risk rebound in the markets has stalled and equity markets are down around 1% on Thursday following quite a good run over the last month. The day we’ve all been waiting for The Autumn Statement has been a long time coming after the disastrous mini-budget almost two months ago. The UK’s fiscal credibility was in the gutter, the pound was crushed and borrowing costs soared. Since then, a lot has changed and today’s budget highlighted just how much that is the case. Read next: Many sued in FTX scandal, Elon Musk to reduce his time at Twitter, EU stocks edged higher on Thursday| FXMAG.COM Fully regaining credibility won’t be easy but markets appear far happier now than they were back in September. The pound is lower on the day but only marginally so and the bulk of the announcements will have been priced in as they were leaked in recent days. Borrowing costs are slightly higher on the day and Bank Rate is expected to peak around 4.5%, still very high but far from the levels reached in September. All in all, the government may be pleased with how today has gone but time will tell whether the public agrees as everyone pours over what was quite an extensive budget. It’s not just the markets that needed convincing today after all, with a little over two years until the next election and a significant deficit still to overcome in the polls. US data reinforces Fed position on rates despite weak housing The latest US economic data represented a continuation of what we’ve seen for months. A housing market suffering under the pressure of higher interest rates and a labour market that is incredibly resilient to them. While the former may be a concern for the central bank as it further raises rates in the months ahead, the latter remains the reason why many at the Fed support such moves as it increases the possibility of inflation remaining stubborn on the way back down. Risks remain tilted to the downside The ripple effects of the FTX debacle continue to flow through the crypto industry revealing other vulnerabilities and weighing heavily on prices even amid a broader financial market risk rebound. Bitcoin is trading relatively flat today around $16,500 but the risks remain skewed to the downside amid immense uncertainty. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Stalled rebound - MarketPulseMarketPulse

UK Retail sales show signs of improvement Retail sales in the UK rose by 0.6% in October compared to the expected 0.5% increase and previous 1.5% decline as British consumers managed to recover slightly despite rising inflation and the ongoing cost of living crisis. While this may appear to be a positive sign, there is still a long way to go before the economic picture begins to look brighter, particularly after yesterday's statement from Chancellor Jeremy Hunt referring to a recession. The pound is starting Friday's session attempting to hold onto some gains with GBPUSD pair testing the 1.19 area after pulling back to 1.175 yesterday. Meanwhile, the FTSE100 remains in the 7370 points area and it remains to be seen if it will be able to extend the upward move or fall further as investors continue to be uncertain. Read next: NVIDIA (NVDA) Q3 earnings results outperformed part of the markets forecasts| FXMAG.COM Twitter saga continues as offices close  Twitter's turbulent story continues after Elon Musk's company just announced the closing of its offices effective immediately until next week. The decision came as a surprise to many, including the employees who were told to comply with company policy. This adds further uncertainty and skepticism as to how the new owner intends to transform the business that took months to acquire while continuing to be a controversial figure. While Twitter stock is no longer available on the market, this is certainly an interesting situation as it could have ramifications and effects on the market as a whole with many holding varying opinions on the matter. In either case, it seems that Elon Musk is willing to take chances and act in unexpected ways if it means achieving his vision for Twitter even if it costs him employees.

The rates rally has run into resistance as central bankers signal that their job is far from being done. In Europe the first TLTRO repayment will kick off the European Central Bank's balance sheet reduction, though the impact should at first be marginal. Over in the UK the prospect of substantial net supply has limited the downside in gilt yields First TLTRO repayment kicks off ECB balance sheet reduction The ECB’s outstanding targeted liquidity operations (TLTRO) and the quantitative easing portfolio currently still bloat the central bank’s balance sheet, a situation not deemed compatible with the ECB’s overarching goal of reining in policy accommodation to tackle high inflation. To that end the ECB had revised the terms of the TLTROs at the last meeting in October. Today the central bank will announce how much of the currently still €2.1tn outstanding banks will repay at the first additional repayment date on 23 November, the day that the new less attractive borrowing terms come into force. Some ECB officials have said they expected a sizeable repayment, though a Bloomberg survey sees estimates in a wide range anywhere from €200bn to €1500bn with a median at €600bn. At this early stage we think the risk is skewed towards a smaller repayment – we have pencilled in €400bn.    The Euribor-Estr basis will become more correlated to credit spreads after TLTRO repayments Source: Refinitiv, ING   Given total excess reserves of €4.7tn today’s repayment by itself will have a marginal impact Officials have hope that the repayments can ease the collateral scarcity. We would caution that the collateral pledged in these operations will unlikely be of the high quality liquid type so dearly in demand. For the system as an aggregate, the repayments will imply a lower amount of excess reserves chasing this quality collateral. Considering that the overall excess reserves are still at a staggering €4.7tn, today’s repayment is likely to have only a marginal impact. Over time with further repayments and at the latest with the bulk of the TLTROs maturing by mid next year the impact should increase, however. The suppression of money market rates that was achieved by high levels of excess reserves should start to fade. The overnight rates ESTR could see fading downward pressure, allowing it to gradually return to the deposit facility rate. Credit sensitive money market rates like the Euribor fixings could become more sensitive to growing systemic risks and the looming recession. Gilt investors will have plenty of supply to absorb The UK Chancellor has presented a plan that will stabilise the country’s debt over the medium term – as much has been confirmed by the independent OBR’s new projections, if only towards 2027/28. But faced with the trade-off between boosting credibility by presenting immediate plans to reduce borrowing and avoiding amplifying the forthcoming recession, the Chancellor is leaning more towards the second of those priorities – much of the fiscal tightening has been deferred to the later years.  Private investors will be required to increase their gilt exposure by at least £268bn in FY2023-24 The result is that borrowing is still elevated over the next couple of years, to the extent that gilt issuance plans have actually increased for the next fiscal year. Taking the Debt Management Office’s forecast 2023-24 remit of £305bn, and the BoE’s quantitative tightening programme, we estimate that private investors will be required to increase their gilt exposure by at least £268bn in FY2023-24. The previous peak was £107bn during the pandemic of FY2020-21.  The size of the gilt market will increase by a record amount next year Source: Refinitiv, ING Today's events and market view The rally in rates has finally run into some resistance. With a look to the UK the higher gilt remit will have helped, but it also seems that Fed officials saw more pushback was in order, warning not to read too much into one CPI reading. Standing out was the Fed’s Bullard, who signalled that he saw the terminal rate at least at 5-5.25%. There is little on the data calendars worth mentioning apart from US existing home sales. The attention should remain on central bank speakers. In the US only the Fed's Collins is scheduled to speak on the labour market, but over in Europe we will see President Lagarde, the Bundesbank’s Nagel and the Dutch central bank’s Knot speaking at the European Banking Congress. Read this article on THINK TagsRates Daily Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

OANDA Senior Market Analyst Craig Erlam reviews the latest market news with Jonny Hart. They discuss the UK Autumn Statement and US economic data. Subscribe on Android This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Market Insights Podcast (Episode 399) - MarketPulseMarketPulse

The UK's money supply and credit data showed a much stronger-than-expected slowdown - an important signal of a slowing economy. Broad money supply (M4) was unchanged in October and added 4.8% y/y, significantly below inflation at 11.1% y/y. The money supply growth rate has been falling since last February following the covid stimulus boom. But in recent months, a downward trend in lending considering rising interest rates has also become prominent. The number of approved mortgage applications in October was 15% lower than a year earlier. Excluding the collapse in the early months of the coronavirus, these are the lowest levels in nine years. The net increase in personal loans for October was 4.74bn, compared with a monthly average of 7bn since the start of the year. The fading here is like what we saw in the mortgage lending crisis. However, the difference is that between 2007 and 2009, the Central Bank fought the credit crunch by bringing the rate down to the floor and launching QE, while now the slowdown in the circulation of money is the policy objective. In the UK, the decline in mortgage lending is explained by the fact that loans are mainly made at floating rates, and warnings from the Bank of England about further policy tightening may deter home purchases, especially given the prospect of rising daily and utility costs. This explains the more rapid transmission of monetary policy against the US, where mortgages are mainly issued at a fixed rate. This provoked a surge in new lending in the early stages of its rise, only to cause a downturn months later. For the pound, the fall in money supply growth and the downturn in lending is relatively bearish news as it raises the question of whether the Bank of England can significantly narrow the rate gap with the US. Since 1985 the Bank of England’s key rate has almost always been higher than the US rate. This difference was significant in 2002-2007, supporting the rise in GBPUSD. The latest data suggests that this will not recover in the foreseeable future, making it difficult for the pair to rise near 1.2200 without help from fundamentals.

It’s been another eventful week and one that serves to remind us that while there may be more sources of optimism this year, compared with last, it’s going to be a very bumpy ride. There’s no doubt that there’s been plenty more cause for optimism so far this year, especially compared with what we became accustomed to in 2022. The US could achieve the soft landing that many have doubted is possible, China could bounce back strongly from the dropping of Covid restrictions and the euro area may avoid a recession. That’s not a bad shift in expectations at all. But just as quickly as they turned more favourable, they could switch again. Economic data from the US this week has been far less promising. Rather than focus on disinflation and the labour market, it’s been other economic indicators and earnings that have taken the spotlight and it hasn’t been great. What’s more, it seems we’re seeing more regular warnings of imminent layoffs, the latest coming from Alphabet which plans to cut 12,000 staff globally. For so long companies have been reluctant to lay staff off following the post-pandemic re-hiring struggles but the tide appears to be turning and it could accelerate from here, at which point the economic data may become much more downbeat. UK retail sales slump again It’s been a busy week for UK economic data and many may be just as confused about the outlook as they were before. Data has previously indicated that the country may have managed to avoid a recession in the fourth quarter but at the same time, retail sales strongly suggest that households are feeling the strain which begs the question, did the World Cup just delay the inevitable? Read next: $1 Million In Sanctions Against Former President Donald Trump, Netflix Co-Founder Reed Hastings Has Stepped Down As CEO| FXMAG.COM Meanwhile, labour market figures remain strong, so much so that wages are continuing to accelerate higher while still failing to keep up with inflation. While that explains why households are spending less, it doesn’t alleviate fears within the BoE that getting inflation sustainably back to 2% could necessitate inflicting more pain on households. An unenviable dilemma, but policymakers are in agreement that inflation must take priority. And when that is still above 10%, it’s clear that means the rate hikes will keep coming. Volatility is back It’s been a very choppy week for bitcoin after the cryptocurrency surged back to life, buoyed by a much-improved risk environment. A period of relative calm in the crypto space has allowed for such a rebound, time clearly being a great healer and all that. Still, as we’ve seen in crypto, the volatility works both ways and what we’ve seen this past week suggests there’s plenty more to come. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. It's going to be a bumpy ride - MarketPulseMarketPulse

The Bank of England has raised rates by 25 bps to 4.50% as expected. A massive upgrade to GDP forecasts and hawkish commentary on inflation has boosted the Pound. Bailey's past gloominess and worries about a global slowdown are holding Sterling down. No recession – that has been the main message from the Bank of England (BOE) in its "Super Thursday" event. That has boosted the Pound, but doubts persist and for good reasons. The BoE raised interest rates by 25 bps to 4.50% as expected, and the Monetary Policy Committee voted by the same 7:2 for this resolution. The big surprise came from the largest change to Gross Domestic Product (GDP) forecasts in the institution's history. The "Old Lady" moved from forecasting a two-year-long recession to no downturn at all. In addition, officials in London also stated that inflation risks remain significantly skewed to the upside. Higher growth and elevated inflation worries justify higher rates – not so fast. This has been the tenth consecutive rate hike, and the impact is still filtering through. A BOE member said that further raising rates is like raising the temperature in the shower before the hot water comes through the pipes. The BOE may provide these warnings and still decide it has done enough – or is nearly there. Another reason to doubt further aggressive moves comes from Bank of England Governor Andrew Bailey"s previous comments. He tends to see the glass half empty on growth rather than having an upbeat tone. Read next: Earnings season: Disney revenue rose more than 13% year-on-year | FXMAG.COM It is also essential to note that the Federal Reserve (Fed) has all but announced the end of its tightening cycle, while China is on the verge of deflation. The current environment seems inconducive to further aggressive hikes. What is next? The BOE may raise rates once or twice before pausing – and markets can smell that. Bailey will speak to the media in a press conference and then provide several additional media interviews. Unless he declares a crusade on inflation – crashing the economy if that is what it takes – the Pound is set to retreat. As brokers always say, past performance does not guarantee future gains, but Bailey's gloominess is a good reason to expect a downbeat message rather than a cheerful one. For Sterling, that means sinking.

On Friday, there will be a few macroeconomic reports, but all of them will be very important. Neither the European Union nor the United Kingdom will issue data today. All the information will come from the US. There will be three reports, two of which are of the highest significance. Nonfarm Payrolls show the number of jobs created in a month outside the agricultural sector. This is a key labor market indicator. It is expected that 180-190 thousand jobs were created in May. Any number lower than this will be considered negative.       The unemployment rate is the second key labor market indicator. It is expected that by the end of May, the rate will increase to 3.5%. However, even 3.6% should not shock traders as it is still a very low value, close to the lowest one recorded 50 years ago. The average hourly earnings is the last report that will be issued today.   This indicator has a direct impact on the inflation rate. The annual increase in wages should not exceed the previous month's value. However, this data is less significant than the first two reports. Analysis of fundamental events:     There are no fundamental events planned for Friday. In recent days, both pairs have been showing a persistent desire to grow, which is not always justified by specific factors. If the growth in the euro makes sense, the pound's appreciation is raising many questions. However, the short-term trend has changed to ascending for both pairs. Thus, further growth can be expected unless the reports from the US are much stronger than the forecasts.   General conclusions: On Friday, there will be two important reports. Both of them will be published at the start of the US trading session. There will be no important events in the first half of the day. Also, yesterday, it was reported that the US House of Representatives approved an increase in the debt ceiling. Thus, there will be no default in the US. Yesterday's fall in the dollar was partially caused by this event. However, it is not logical. The market could have priced in the approval of the increase (since there were no other options, really), and now it could be benefiting from short orders. Nevertheless, we still expect a stronger drop from the euro and the pound.   Basis trading rules: 1) The strength of a signal is judged by the time it took to form the signal (a bounce or overcoming level). The less time it took, the stronger the signal is. 2) If two or more trades were opened around any level based on false signals, then all subsequent signals from this level should be ignored. 3) In a flat market, any pair can form a multitude of false signals or not form them at all. In any case, at the first signs of a flat movement, it is better to stop trading. 4) Trades are opened in the time period between the beginning of the European session and the middle of the US one when all trades should be manually closed. 5) In the 30-minute period, you can trade using signals from the MACD indicator only when there is good volatility and a trend, which is confirmed by a trend line or a trend channel. 6) If two levels are located too close to each other (from 5 to 15 pips), they should be considered as a support or resistance area.     What we see on the chart: Price levels of support and resistance are levels that act as targets when opening buy or sell orders. Take profit levels can be placed near them. Red lines are channels or trend lines that show the current trend and indicate in which direction it is preferable to trade now. MACD indicator (14,22,3) is a histogram and signal line, that is an auxiliary indicator, which can also be used as a source of signals. Important speeches and reports (always included in the macroeconomic calendar) can have a significant influence on the movement of a currency pair. Therefore, during their release, you should trade with maximum caution or exit the market to avoid a sharp price reversal against the previous movement. Beginners should remember that not every trade can be profitable. A clear strategy and money management are key to success in long-term trading.      

There will be limited macro data on Monday, but the fact that there will be some is already a good sign. Mondays often lack both fundamental news and macroeconomics, which negatively affects the nature of movements and volatility. Tomorrow, business activity indices in the service sectors will be published in the European Union, the United Kingdom, and the United States.   We cannot say that these are extravagant data, especially since they will be the second estimates for May. In other words, the market is already familiar with the preliminary estimates. The business activity index in the UK and the ISM index in the US can be considered somewhat important.   However, unexpected values or deviations from forecasts are needed to trigger a market reaction. Without such influence, there won't be much impact on traders' sentiment.     There will be limited macro data on Monday, but the fact that there will be some is already a good sign. Mondays often lack both fundamental news and macroeconomics, which negatively affects the nature of movements and volatility. Tomorrow, business activity indices in the service sectors will be published in the European Union, the United Kingdom, and the United States.   We cannot say that these are extravagant data, especially since they will be the second estimates for May.   In other words, the market is already familiar with the preliminary estimates. The business activity index in the UK and the ISM index in the US can be considered somewhat important. However, unexpected values or deviations from forecasts are needed to trigger a market reaction. Without such influence, there won't be much impact on traders' sentiment.     Analysis of fundamental events: No significant fundamental events are scheduled for Monday. Both currency pairs corrected downwards on Friday, but the short-term upward trends are still intact. However, in the medium-term, a further decline in the euro and the pound is more likely. We believe it is advisable to pay attention to higher charts at the moment. In our weekend articles, we extensively discussed the key points to watch for in the coming week. We recommend reviewing those articles.     General conclusions: Monday will have few important events, but some of the reports may influence market sentiment and consequently affect the movement of major currency pairs. It is crucial to understand the medium-term direction of the euro and the pound this week.   As we have mentioned before, a short-term upward trend has formed, but a downward trend still persists in the longer term. Therefore, the battle between bulls and bears this week will not only be interesting but also significant. Basic trading rules: 1) The strength of the signal depends on the time period during which the signal was formed (a rebound or a break). The shorter this period, the stronger the signal. 2) If two or more trades were opened at some level following false signals, i.e. those signals that did not lead the price to Take Profit level or the nearest target levels, then any consequent signals near this level should be ignored. 3) During the flat trend, any currency pair may form a lot of false signals or do not produce any signals at all. In any case, the flat trend is not the best condition for trading. 4) Trades are opened in the time period between the beginning of the European session and until the middle of the American one when all deals should be closed manually.   5) We can pay attention to the MACD signals in the 30M time frame only if there is good volatility and a definite trend confirmed by a trend line or a trend channel. 6) If two key levels are too close to each other (about 5-15 pips), then this is a support or resistance area.   How to read charts: Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them. Red lines are channels or trend lines that display the current trend and show which direction is better to trade. MACD indicator (14,22,3) is a histogram and a signal line showing when it is better to enter the market when they cross.   This indicator is better to be used in combination with trend channels or trend lines. Important speeches and reports that are always reflected in the economic calendars can greatly influence the movement of a currency pair. Therefore, during such events, it is recommended to trade as carefully as possible or exit the market in order to avoid a sharp price reversal against the previous movement. Beginners should remember that every trade cannot be profitable.   The development of a reliable strategy and money management are the key to success in trading over a long period of time.  

Economic calendar for July 10 Monday is traditionally accompanied by an empty macroeconomic calendar. No important statistical data is expected to be published in the European Union, the United Kingdom, and the United States. Therefore, investors and traders intend to rely on the incoming flow of information and news. EUR/USD trading plan for July 10 Due to the technical overbought signal of the euro in the short-term and intraday periods, a price pullback is possible. To continue the current upward cycle, market participants need to overcome the resistance level around 1.1000. If the price remains consistently above this level, it may stimulate an increase in long positions.      

GBP/USD trading plan for July 10 In this situation, the return of the price to the local high indicates a prevailing bullish sentiment among market participants. The pullback we are observing can serve as a stage for regrouping trading forces before further growth. To confirm the continuation of the upward trend, it is necessary to keep the price above the level of 1.2850, which may trigger a technical signal for further growth.       What's on the charts The candlestick chart type is white and black graphic rectangles with lines above and below. With a detailed analysis of each individual candle, you can see its characteristics relative to a particular time frame: opening price, closing price, intraday high and low. Horizontal levels are price coordinates, relative to which a price may stop or reverse its trajectory. In the market, these levels are called support and resistance. Circles and rectangles are highlighted examples where the price reversed in history. This color highlighting indicates horizontal lines that may put pressure on the asset's price in the future. The up/down arrows are landmarks of the possible price direction in the future.  

  The GBP/USD currency pair fell by almost 150 points yesterday following the release of business activity indices in the services and manufacturing sectors of the European Union and the United Kingdom. While only the European indices affected the euro, the pound was influenced by both the European and British indices. This explains the pound's more significant drop, which offset all its losses by the end of the day. Now, if you look closely at the illustration above, you'll see that despite the sharp decline on Wednesday, the pair still sits within the lateral channel of 1.2634–1.2787. Yesterday, it touched the lower boundary of this channel for the third time, predictably rebounding from it, and now it may rise back to the 1.2787 level. Notably, this movement doesn't necessarily require any specific fundamental or macroeconomic background - the pair is in a flat trend, which means the movements are random. Thus, the technical outlook remains unchanged from the previous day despite the high volatility. However, one thing does concern us.   The CCI indicator entered oversold territory yesterday, dropping quite deep. Such signals are typically strong. Although the pair might rise to the mentioned level of 1.2787, it won't remain flat forever, and the chances of a more significant upward movement are slightly higher than yesterday. On the 24-hour time frame, there's no change. The pair still hasn't settled below the Ichimoku cloud, so the upward trend remains intact, and an upward move could resume anytime. As on many previous occasions, the pound may see a minor pullback. Even though we see no reason for the British currency to continue its rise, we must admit that there are still no strong signals indicating a trend change in the long term. The August UK manufacturing business activity index dropped from 45.3 points to 42.5.   The corresponding index for the services sector fell from 51.5 points to 48.7. Consequently, all business activity indices are now below the "waterline" – the 50.0 mark. Hence, we can anticipate further deterioration in other macroeconomic indicators and expect the Bank of England to take a pause. As we've repeatedly stated, the position of the British regulator is unenviable. Inflation remains very high, economic indicators continue to decline, and rates are rising. However, they can't rise indefinitely. The market seems to interpret the macroeconomic backdrop very one-sidedly, seemingly believing in the perpetual tightening of monetary policy in the British Isles. In our opinion, this is a mistake, but as they say, one cannot argue with the market. This week, there are virtually no significant events left. Today, a more or less important report on orders for durable goods in the US will be released, and tomorrow, Jerome Powell will speak. In essence, there's only one question regarding the head of the Federal Reserve, and we won't get an answer.   After inflation in the States accelerated for the first time in 14 months, the rate will be raised in September. However, speaking confidently about it without the August inflation report doesn't make sense.     The average volatility of the GBP/USD pair for the last five trading days is 90 points. For the pound/dollar pair, this value is considered "average." Thus, on Thursday, August 24, we expect movement within the range limited by levels 1.2634 and 1.2814. A reversal of the Heiken Ashi indicator upwards will signal a new upturn in the lateral channel.   Nearest support levels: S1 – 1.2695 S2 – 1.2634 S3 – 1.2604   Nearest resistance levels: R1 – 1.2726 R2 – 1.2756 R3 – 1.2787   Trading recommendations: The GBP/USD pair in the 4-hour timeframe remains above the moving average, but overall the trend is flat. It is possible to trade now on a rebound from the upper (1.2787) or lower (1.2634) boundaries of the lateral channel, but reversals may occur before reaching them. The moving average can be crossed frequently, which doesn't signify a trend change.   Illustrations explanations: Linear regression channels – help determine the current trend. The trend is currently strong if both are pointed in the same direction. Moving average line (settings 20.0, smoothed) – determines the short-term tendency and the direction in which trading should be conducted. Murray levels – target levels for movements and corrections. Volatility levels (red lines) – the likely price channel the pair will spend the next day, based on current volatility indicators. CCI indicator – its entry into the oversold area (below -250) or the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.  

Remember that 'back to school' feeling at the end of summer? A tedious car journey home after holiday fun, knowing you'll be picking up where you left off? I'm afraid we've got a very similar feeling about the global economy right now. 'Are we nearly there yet?'. No. Very few reasons to be cheerful Lana del Rey's Summertime Sadness classic comes to mind as we gear up for autumn. And I'm not just talking about chaotic weather or even, in my case, disappointing macro data. Most of us have had the chance to recharge and rethink over the past couple of months. and I'm afraid all that R&R has done little to brighten our mood as to where the world's economy is right now. Sure, the US economy has been holding up better than we thought. And yes, the eurozone economy grew again in the second quarter. Gradually retreating headline inflation should at least lower the burden on disposable incomes. And let's be thankful for the build-up of national gas reserves in Europe, which should allow us to avoid an energy supply crisis this winter unless things turn truly arctic. But that's about as upbeat as I can get. We still predict very subdued growth to recessions in many economies for the second half of the year and the start of 2024. The stuttering of the Chinese economy seems to be more than only a temporary blip; it seems to be transitioning towards a weaker growth path as the real estate sector, high debt and the ‘de-risking’ strategy of the EU and the US all continue to weigh on the country's growth outlook. In the US, the big question is whether the economy is resilient enough to absorb yet another potential risk factor. After spring's banking turmoil, the debt ceiling excitement, and more generally, the impact of higher Fed rates, the next big thing is the resumption of student loan repayments, starting in September. Together with the delayed impact of all the other drag factors, these repayments should finally push the US economy into recession at the start of next year. And then there's Europe. Despite the weather turmoil, the summer holiday season seems to have been the last hurrah for services and domestic demand in the eurozone. Judging from the latest disappointing confidence indicators, the bloc's economy looks set to fall back into anaemic growth once again   Little late summer warmth This downbeat growth story does have an upbeat consequence; inflationary pressure should ease further. It's probably not going to be enough to bring inflation rates back to central banks’ targets, but they should be low enough to see the peak in policy rate hikes. Central bankers would be crazy to call an end to those hikes officially; they don't want to add to speculation about when the first cuts might come, thereby pushing the yield further into inversion. And there's also the credibility issue - you never know, prices might start to accelerate again. So, expect major central bankers to remain hawkish at least until the end of the year. In our base case, we have no further rate hikes from the US Federal Reserve and one final rate rise by the European Central Bank.   However, in both cases, these are very close calls, and the next central bank meetings are truly data-dependent. Sometimes, a Golden Fall or Indian Summer can make up for any summertime sadness. But it doesn’t look as if the global economy will be basking in any sort of warmth in the coming weeks. The bells are indeed ringing loud and clear. Vacation's over; school is here. And while I'm certainly too old for such lessons, I'm taken back to that gloomy, somewhat anxious feeling I had as a kid as summer wanes and the hard work must begin once again.   Our key calls this month: • United States: The US confounded 2023 recession expectations, but with loan delinquencies on the rise, savings being exhausted, credit access curtailed and student loan repayments restarting, financial stress will increase. We continue to forecast the Federal Reserve will not carry through with the final threatened interest rate rise. • Eurozone: The third quarter may still be saved by tourism in the eurozone, but the latest data points to a more pronounced slowdown in the coming months. Inflation is falling, but a last interest rate hike in September is not yet off the table. The European Central Bank will be hesitant to loosen significantly in 2024. • China: The latest activity data has worsened across nearly every component. Markets have given up looking for fiscal stimulus, and have started making comparisons with 1990s Japan. We don’t agree with the Japanification hypothesis, but clearly a substantial adjustment is underway, and we have trimmed our growth forecasts accordingly. • United Kingdom: Uncomfortably high inflation and wage growth should seal the deal on a September rate hike from the Bank of England. But emerging economic weakness suggests the top of the tightening cycle is near, and our base case is a pause in November. • Central and Eastern Europe (CEE): Economic activity in the first half of the year has been disappointing, leading us to expect a gloomier full-year outlook. Despite this, we see a divergence in economic policy responses, driven by countryspecific challenges. • Commodities: Oil prices have strengthened over the summer as fundamentals tighten, whilst natural gas prices have been volatile, with potential strike action in Australia leading to LNG supply uncertainty. Chinese concerns are weighing on metals, but grain markets appear more relaxed despite the collapse of the Black Sea deal. • Market rates: The path of least resistance is for longer tenor rates to remain under upward pressure in the US and the eurozone and for curves to remain under disinversion (steepening) pressure. We remain bearish on bonds and anticipate further upward pressure on market rates from a tactical view. • FX: Stubborn resilience in US activity data and risk-off waves from China have translated into a strengthening of the dollar over the summer. We still think this won’t last much longer and see Fed cuts from early 2024 paving the way for EUR:USD real rate convergence. Admittedly, downside risks to our EUR/USD bullish view have grown.     Inflation has only been falling for a matter of months across major economies, but the debate surrounding a possible “second wave” is well underway. Social media is littered with charts like the ones below, overlaying the recent inflation wave against the experience of the 1970s. These charts are largely nonsense; the past is not a perfect gauge for the future, especially given the second 1970s wave can be traced back to another huge oil crisis. But central bankers have made no secret that nightmares of that period are shaping today's policy decisions. Policymakers are telling us they plan to keep rates at these elevated levels for quite some time.

The EUR/USD currency pair continued its downward movement throughout Tuesday. Volatility remained relatively weak, and the decline was not too strong. Nevertheless, it is very stable and raises no questions. We have repeatedly mentioned in recent weeks that such a movement is expected from the European currency, even if it seems illogical at first glance. For example, on Monday and Tuesday, there were no significant events or publications to justify the continued decline of the European currency. Last week, we expected an upward correction, which has yet to materialize. However, this market situation is the most logical one after the euro either rose unjustifiably in the first half of the year or simply held at a very high level without a correction. We believe that this factor is crucial for the euro and the dollar right now.   Consider this: if the Federal Reserve has raised and is raising interest rates more aggressively than the ECB, why have we seen the euro currency rise over the past year? Assume that the market has already set prices for all rate increases in the United States. In that case, why weren't rate hikes in the European Union priced the same way? The European economy has been struggling for several quarters, while in the US, we have seen quarterly growth of 2-3%. Based on all these factors, we have constantly stated that it's time for the pair to move downward. Significantly and for the long term. We do not rule out the possibility that, by the end of the year, the euro currency will return to parity with the dollar. In the 24-hour timeframe, the pair has breached the important Fibonacci level of 38.2% (1.0609) and is now almost guaranteed to drop to the 5th level. Remember that we have long referred to level 1.05 as the target. However, the movement to the south may not end there. We fully consider the possibility of a drop to the next Fibonacci level of 23.6% (1.0200). Muller and de Cos are once again pushing the euro lower. There have been no significant macroeconomic publications in the past few days. Only today in the United States will the report on durable goods orders be published, which can be considered more or less significant. However, over the past few days and the entire last week, we have witnessed speeches by representatives of the ECB's monetary committee. Several times a day. In principle, it became clear last week that the ECB is on the home stretch and will raise rates at most one more time. As we have mentioned, in the case of the ECB or the Federal Reserve, such actions can be considered logical, as the central banks have raised (or will raise by the end of the year) rates to almost 6%. Further rate hikes would be risky for the economy. But the situation is different with the ECB. The rate is slightly above 4%, which is clearly insufficient to bring inflation back to the target level in the near future.     But we are not here to judge the ECB; we are merely stating a fact: the ECB's rate has increased too weakly compared to the Federal Reserve's rate, and the euro currency has risen for too long based on expectations of a strong tightening of monetary policy in the European Union. The European currency may continue to decline peacefully because a wave of disappointment has now covered the market. On Tuesday, Madis Muller from the ECB stated that he does not expect a new rate hike. De Cos and de Galhau, the heads of Spain's and France's central banks, as well as Vice President de Guindos, had previously made similar statements. In one way or another, all ECB representatives have indicated that further tightening will only be possible in the event of accelerated inflation. However, the market is not too satisfied with this formulation because everyone understands that the European Union will be battling high inflation for several years to come. Just like the United Kingdom, but at least with Britain, it can be said that the central bank has done everything it could.   The average volatility of the EUR/USD currency pair over the last 5 trading days as of September 27th is 65 points and is characterized as "average." Thus, we expect the pair to move between the levels of 1.0495 and 1.0625 on Wednesday. A reversal of the Heiken Ashi indicator upwards will indicate a new attempt to make a slight correction. The nearest support levels are: S1: 1.0498 Nearest resistance levels: R1 = 1.0620 R2: 1.0742 R3: 1.0864     Trading recommendations: The EUR/USD pair maintains a downtrend. Short positions can be held with targets at 1.0510 and 1.0495 until the price consolidates above the moving average. Long positions can be considered if the price consolidates above the moving average with a target of 1.0742. Explanations for the illustrations: Linear regression channels help determine the current trend. If both are pointing in the same direction, it means the trend is strong right now. The moving average line (settings 20.0, smoothed) determines the short-term trend and the direction in which trading should be conducted at the moment. Murray levels: target levels for movements and corrections. Volatility levels (red lines): the probable price channel in which the pair will move in the next day based on current volatility indicators. CCI indicator: its entry into the overbought region (above +250) or oversold region (below -250) indicates that a trend reversal in the opposite direction is approaching.  

Strongest hiring plans in the Netherlands While the economic environment is deteriorating, most employers still have modest hiring intentions as we begin 2024. In fact, most employers in the Netherlands, Belgium and Germany are more optimistic about their hiring plans at the start of this year than they were at the end of 2023. In France, Switzerland and Sweden, hiring plans are weaker for the first quarter of 2024 compared to the end of 2023.    Employers in the Netherlands, Belgium and Germany are more optimistic about their hiring plans in 2024 Percentage of employers planning to hire minus the percentage of employers expecting a reduction in staffing levels     Less demand for temporary workers 2024 will be another challenging year for the temporary employment sector. Economic growth forecasts for most European economies remain weak for 2024, ranging from a mild contraction in Sweden and Germany to a lingering 0.7% GDP growth in Belgium and the Netherlands. As a result, unemployment could rise slightly.  The sluggish economic outlook also has consequences for the employment services industry. Companies are reluctant to invest now that the market remains highly uncertain. This softens the demand for temporary agency workers. That's particularly true for the manufacturing sector, an important industry for temp workers, where new orders continue to decline, as does capacity utilisation. But employment prospects for temp workers are also deteriorating in the services sector. Taken together, market volumes in the employment services sector are expected to decline in most European economies next year.   Staffing sector forecast: volumes are likely to decline in most European economies Volume output (value added) employment services industry, year-on-year, indices (2019=100)     Belgium - Shorter duration of temporary work GDP growth in Belgium is expected to be relatively high at 0.7% in 2024, compared to other European economies. This is mainly due to automatic wage indexation, which means that income increases with the inflation rate (excluding alcohol, tobacco and fuels). Higher purchasing power stimulates consumer spending and, thus, economic growth. Nevertheless, higher hourly labour costs will negatively impact labour demand, including the demand for temporary agency workers. We, therefore, expect a decline in market volumes in the temporary employment sector in 2024. Despite a slow economic growth, Belgium's labour market remains very solid. This is largely due to the country's tight labour market. One of the consequences of talent scarcity is that the duration of temporary work is becoming shorter because temp workers are more often hired on a permanent basis.    France - Hiring plans on hold Economic growth is expected to slow further, from 0.9% in 2023 to 0.6% in 2024. The outlook for both the French services and manufacturing sectors remains bleak. Both sectors are facing lower demand, high inflation and greater uncertainty. In addition, the French labour market is showing the first signs of cooling down, resulting in a rise in unemployment in 2024. The deterioration of the employment climate is mainly due to the services sector. Because almost half of the temps actually work in the service sector, this will also have a negative impact on the demand for temporary agency workers and the number of hours worked. We, therefore, expect a further contraction in employment activities in 2024.    Germany - Hiring freeze over recession fears Weaker global demand, high interest rates, energy uncertainty and persistently high inflation are hitting the German economy this year. This will have consequences for the demand for temporary agency workers. Adverse macroeconomic developments are putting pressure on the German automotive industry, an important sector for employment agencies. In addition, production is also declining substantially in other subsectors of the manufacturing industry. Another factor negatively affecting the temporary employment sector is the shortage of temp workers due to demographic developments. Overall, we expect a further decline in the volume of employment activities in 2024.    The Netherlands - Self-employment is an attractive alternative As a result of a weakening economy, the number of temporary employment hours in the Netherlands is expected to decrease further in 2024. We anticipate a decrease in the number of temporary agency hours by approximately 5% by 2024, mainly due to continued relatively low economic growth. In manufacturing, temp workers are the first to be laid off due to a rapid decline in production and the number of orders.  A major challenge for the staffing industry in the Netherlands is the impact of stricter regulations, which make agency workers more expensive and less flexible. As a result, other forms of employment contracts become more attractive for hiring companies, such as self-employed professionals.    More self-employed people, less flexible employment in the Netherlands in 2023 Share of labour position in the labour force in the Netherlands, third quarter    Sweden - The job market is cooling down Sweden is among the European economies expected to enter a recession in 2023, mainly due to high inflation and higher interest rates. We expect economic activity to stagnate this year. There are already signs that the job market is cooling down. As a result, consumer and business confidence remains low. The economic situation is likely to weaken demand for temp workers, especially in the construction and manufacturing sectors. Overall, we expect market volumes for the temporary employment sector to decline again in 2024.    Switzerland - Another year of negative volume growth in employment activities Like many other European countries, the Swiss economy became more challenging in 2023 due to high inflation, higher interest rates and weakening global demand. GDP growth is expected to slow from 2.2% in 2022 to around 0.6% in 2023 and 2024. The Swiss manufacturing industry, with a relatively large weight of the cyclical chemical and pharmaceutical sectors, is shrinking. The staffing market is also negatively affected by staff shortages, making it difficult to find suitable candidates. In short, we expect another year of negative volume growth in employment activities in Switzerland in 2024.    Manufacturing and construction are the most important sectors for the Swiss staffing industry Percentage of industries that used temporary agency work in Switzerland in 2022   The United Kingdom - Weak outlook for the employment activities sector Economic activity in the UK is expected to grow only modestly in 2024, similar to most other European economies. The sluggish economy will lead to a decrease in the number of vacancies and an increase in the unemployment rate. However, given the ongoing staff shortages, this increase is expected to be limited. Nevertheless, we expect the demand for temporary agency workers to weaken further in 2024.