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

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 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.