Currency Market News October: Updates & Insights from PathFinder FX

The Pound - Currency Market News October

With the pound recovering ground this week it suggests the market is beginning to question whether the Bank of England (BoE) is ready to cut interest rates again this year. The uncertainty over BoE’s monetary policy outlook has increased as inflationary pressures in the economy are proving to be persistently high. In September’s monetary policy meeting, the BoE held interest rates steady at 4% and retained its “gradual and careful” monetary easing approach.

The expectation was for a further interest rate cut at one of the 2 remaining meetings this year, but with this now in doubt, it offers the pound some respite. The latest BoE meeting minutes showed that UK households and businesses remain resilient despite the "higher cost of living and borrowing costs". Given how close the vote split was for the last cut in August, it suggests the committee is beginning to see inflation as a bigger risk than slower growth.

GDP Figures for the UK are due on the 16th October - the government will be hoping for a boost to flatlining growth, the figures for year to July below.

The Dollar

The Dollar has proved resilient, gaining strength via a risk averse market caused in part by their own government shut down which has entered its second week, alongside political uncertainty in Japan and France. Focusing on the US, the government shut-down is expected to become a major drag on the US Dollar, with President Trump threatening to cut welfare programs and laying-off federal jobs. With expectations that the Fed are likely to cut interest rates at both remaining meetings this year the Dollar is at risk of renewed selling pressure.

The Euro

Following a strong run of form for the Euro in recent months, with interest rates on hold and the European Central Bank seemingly comfortable with current inflation levels the Euro has now run in to a problem. It appears investors can no longer ignore the political turmoil in France following the shock resignation of PM Sebastien Lecornu after less than a month in office. President Macron must now try and find a candidate to become the 6^th Prime minister in less than 2 years or finally concede defeat and call for fresh elections, potentially handing power the hard-right National Rally party (RN) of Marine Le Pen. This continued political turmoil could weigh heavy on the Euro moving forward.

Australian & NZ Dollar

The pound continues to perform strongly against the AU Dollar and NZ Dollar, with a more significant improvement against the latter triggered by the Reserve Bank of New Zealand surprising markets with a 50bps interest rate cut of 2.50%. The central bank signalled it remains open to further reductions, citing spare capacity and downside risks to activity and inflation. With the Reserve Bank of Australia also signalling that further rate cuts are imminent, it looks like the pound's strong run of form against both antipodean currencies could continue.

Currency Market News October.

Adam Jordan

Key Dates for Economic Calendar

Oct 10th - Canada Unemployment figures

Oct 14th - Australia, Business Confidence

UK - Unemployment figures

Germany - Economic Sentiment

Oct 15th US & China - Inflation figures

Oct 16th UK Retail Sales and GDP Figures