FX Update: UK budget statement a damp squib for sterling. FX Update: UK budget statement a damp squib for sterling. FX Update: UK budget statement a damp squib for sterling.

FX Update: UK budget statement a damp squib for sterling.

Forex
John Hardy

Head of FX Strategy, Saxo Bank Group

Summary:  Sterling got nothing from the budget statement yesterday, suggesting that any structural concerns for UK finances will be a slow burn issue, with risks possibly picking up in the next fiscal year, given the enormous issuance of gilts on the menu. Elsewhere, the USD is going nowhere in a hurry as it has consolidated for a full week now since the huge move last week. Identifiable catalysts are few and far between until beyond next week’s US Thanksgiving holiday.


FX Trading focus: Autumn budget statement does nothing to inspire sterling traders. USD sideways. Interesting signal from possible next BoJ governor.

The Chancellor Hunt Budget statement yesterday was a damp squib for sterling, sparking virtually no market reaction. Still, a couple of observations. First, there was apparently no major pent-up further “relief trade” of note, as EURGBP poked beyond the lows of this week without finding additional sellers, just as UK gilts seem to have come full circle in pricing the change of fiscal stance from the Treasury, as UK yields are moving passively with US treasury yields in recent days. So no immediate fall-out, meaning that forward structural concerns will possibly be a slow-burn issue, perhaps aggravated by the accumulation of incoming data and/or BoE missteps. Beyond this fiscal year, which lasts until April of next year, Gilt issuance is now forecast somewhat lower than previous estimates after the updates on the Treasury’s intentions yesterday. But for the 2023-24 fiscal year, gilt issuance is set to balloon, according to the UK’s Debt Management Office. An analyst cited in a Bloomberg article (could only find on internal platform) said that net gilt issuance next fiscal year could come in over £250 billion, almost twice the previous record in 2011. In another article, some suggest that Chancellor Hunt may have a hard time even delivering the spending cuts he outlined in the statement – with the spending tightening only set to begin, conveniently, after the next election (2024 or before) in 2025. In short – no immediate reaction, but the UK’s woeful structural twin deficit challenges remain far from addressed for the coming few years. GBPUSD looks rich without a Fed reversal (way too early there…).

The US dollar is biding its time in a range after the huge sell-off that was mostly on the back of the October CPI release. If we get another couple of days or so of waiting for follow through lower in the greenback, the momentum will really have begun to seep out of the move. Still, the move was extensive enough to require a considerable rally indeed to argue that the USD bull market is returning. As I have noted, the next heavy hitting data points aren’t up until the November 30th PCE inflation print, and then the jobs report on December 2 and November CPI on December 13th. Next week does have a bit of a data drop and FOMC minutes all crammed into Wednesday, the day before the Thanksgiving holiday, where traditionally little trading takes place, Friday inclusive.

Chart: EURUSD
A huge break higher through 1.0100 in EURUSD was sparked by the hot October US CPI print last Thursday and we have closed every day this week within half a figure of the Friday close. A few days of consolidation is one thing, but if the pair doesn’t follow through higher in the coming couple of days, the move will have lost considerable momentum. Note the 200-day moving average that was touched earlier this week for the first time since June of last year, a remarkable run. That 1.0100 area is an important pivot, with the 61.8% retracement of this large rally wave not coming into until close to parity. To the upside, the next important zone is perhaps 1.0611 (the 38.2% retracement of the sell-off wave from the multi-year high at 1.2349 to the 0.9536 low for the cycle) and then the 2020 pandemic outbreak a tad higher at 1.0636.

Source: Saxo Group

My colleague Redmond flagged a story in the Asian session overnight, as former BoJ Deputy Governor Haruhiko Nakaso – and a strong candidate to replace Kuroda next spring – was out arguing in a seminar that, in a general sense, central banks need to remove emergency support once the moment of actual financial crisis has passed. He has even written a book detailing how the Bank of Japan could unwind its monetary policy accommodation. Another prominent figure, former BoJ chief economist Seisaku Kameda said that he had no expectations for Kuroda to adjust policy before the end of his second 5-year April, but his leaving could open the path to tweaking BoJ policy. He said that most inflation in Japan is currently from companies raising prices as they pass on rising input prices, not from “demand pull” inflation. Last night, the October Japanese CPI coming in higher than anticipated, at 3.7% YoY for the headline vs. 3.6% expected and 3.0% in September, although the core ex Fresh Food & Energy number was 2.4% vs. 2.5% expected and +1.8% in September.

Table: FX Board of G10 and CNH trend evolution and strength.
CAD and NOK suffering a bit on the crude oil sell-off that turned a bit uglier still yesterday. Elsewhere, waiting for whether the USD follows through lower today or early next week to avoid the momentum from last week turning stale. NZD standing tall as the strongest of the G10 lot – is this on China’s overtures on cooperating on many measures as NZ PM Ardern met China’s Xi Jinping on the sidelines of the G20 meeting?

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
EURNOK rallied hard today after a big drop in crude oil, making the resistance above 10.65 the last resistance level of note.  EURCHF is also making a bid for the cycle highs again on a bit more follow through after rejecting most of the recent impulsive sell-off.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1315 – UK Bank of England’s Catherine Mann to speak
  • 1330 – Canada Oct. Home Price Index
  • 1340 – US Fed’s Collins (non-voter) to speak
  • 1500 – US Oct. Existing Home Sales
  • 1500 – US Oct. Leading Index

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Support Centre
For existing clients, please click here to request support via the Support Centre.

Have a question about our products, platforms or services? Visit the Support Centre to find answers for our most frequently asked questions. If you are still unable to locate an answer to your question, you will also find contact details for your local Saxo office to speak with a representative.

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.