UK: Weekly FX Market Update 24 October

GBP

• Last week PM Truss resigned and Tory MPs and the Tory party are very close to electing rishi Sunak the former Chancellor as Prime Minister.

• If any MP has the backing of 179 MPs they will automatically be PM.

• The MPs vote will be announced at 6pm today.

• First reading Manufacturing and Services PMI will be released on Monday and MPC Pill speaks on Tuesday.

The pound is again being driven by political events. The markets preferred choice is Rishi Sunak and the pound could find some calm if he is elected. The remaining candidate, after former disgraced PM Johnson pulled out is Penny Mordaunt, who so far has the backing of 50 MPs. She needs 100 MPs backing by 2 pm to force the matter to go to a party member vote. Where she could win as Sunak is not a favourite with the members.

EUR

EURUSD gained 1.5% last week in a relatively stable manner. The Ukraine war continues and is, to an extent, already discounted by the markets.

The main focus will be the ECB meeting and interest rate decision on Thursday, with the market expecting a 0.75% rate hike. The press conference afterwards will be inspected for guidance on policy, which could allude to further ECB rate hikes.

USD

The dollar was supported last week by hawkish comments from the Federal Reserve, going in to late Friday trading. San Francisco Fed President Daly said that policymakers should start planning for a reduction in the size of interest-rate increases. This comment, alongside USDJPY selling from the Bank of Japan and previous intervention from the Peoples Republic of China, pushed the dollar lower across the board.

It’s a busy week of data for the dollar, with US Treasury Secretary Yellen speaking on Monday, consumer confidence is released on Tuesday, Advance GDP on Thursday and Personal Consumption Expenditure on Friday. There is now a news black-out period before the Federal Reserve’s interest rate decision on November 2nd.

RoW

The Bank of Japan (BoJ) meets this week and is expected to maintain its ultra-accommodative stance, this could encourage USDJPY buying again. The BoJ has stated that it wants to ‘slow down’ the rate of yen weakness, rather than change its direction, and sees this as the method to do just that.

Events for the weekend ahead:

Mon Oct 24

09:00 EUR Flash Manufacturing/Services PMI

09:30 GBP Flash Manufacturing/Services PMI

14:45 USD Flash Manufacturing/Services PMI

16:00 USD US Treasury Secretary Yellen Speaks

Tue Oct 25

09:00 EUR German IFO Business Climate

09:55 GBP BoE MPC Pill speaks

15:00 USD Consumer Confidence

Wed Oct 26

00:01 CNY GDP/Retail Sales

01:30 AUD CPI

15:00 CAD Bank of Canada Interest Rate Decision

16:00 CAD Bank of Canada Press Conference

Thu Oct 27

13:15 EUR ECB Interest Rate Decision

13:30 USD Advance GDP/Durable Goods

13:45 EUR ECB Press Conference

Fri Oct 28

00:01 BoJ Interest Rate Decision/Press Conference

13:30 CAD GDP

13:30 USD Core PCE Price Index