Market Insight 31-10-2024

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  • Market Insight 31-10-2024

GBP/EUR

Summary:
Sterling has been under pressure following the Labour government’s Autumn Forecast Statement, which featured substantial tax increases aimed at public service funding. Initially, the budget appeared stimulative, but markets grew cautious about Labour’s borrowing plans, which are close to £300bn for FY24/25. This fiscal policy shift, combined with higher gilt yields, saw traders reducing their expectations of aggressive interest rate cuts by the Bank of England (BoE).

Outlook:
Looking ahead, the BoE’s upcoming meeting in November will be crucial. The fiscal changes may delay any BoE rate cuts, though inflation data remains a key factor. With the Eurozone showing robust GDP growth and potential for further CPI increases, the EUR could strengthen against the GBP if Eurozone data continues outperforming. EUR/GBP could move closer to the 0.8400 mark if this trend holds.

GBP/USD

Summary:
GBP/USD rate saw fluctuations following both the UK budget announcement and mixed data from the US. Sterling initially gained on expectations of reduced BoE rate cuts, while the US Dollar softened slightly as the US Q3 GDP growth came in lower than expected. While the robust ADP employment report supported the USD, the prospect of slowing job growth in the US kept the Dollar subdued.

Outlook:
Sterling’s outlook will hinge on BoE policy, especially if inflation pressures persist. In the US, upcoming Nonfarm Payrolls data will be pivotal; a strong report could reinforce the USD, while a weaker one may bolster GBP/USD above the 1.3000 mark. The market will also watch the Federal Reserve’s moves closely, particularly if a dovish stance prevails amid slower economic data.

EUR/USD

Summary:
The Euro gained ground against the Dollar, buoyed by stronger-than-expected Eurozone GDP growth and robust inflation data from Germany. This has softened expectations of large rate cuts from the European Central Bank (ECB). Meanwhile, US economic data remains mixed, with growth figures slightly underperforming expectations, which put additional downward pressure on the USD.

Outlook:
The Euro could see further gains if the upcoming Eurozone Harmonized Index of Consumer Prices (HICP) data aligns with Germany’s strong inflation. However, EUR/USD movement may be tempered as markets anticipate US NFP and ISM Manufacturing PMI data; strong US figures could push the Dollar higher in the near term, potentially capping the EUR/USD around 1.0850.

Final Summary:

Markets remain reactive to mixed signals from central banks and economic indicators. The UK’s new budget has implications for Sterling, as it may delay aggressive BoE rate cuts. Meanwhile, Eurozone economic resilience could bolster the Euro if inflation and growth data remain strong. In the US, the Dollar’s path will likely hinge on employment data and the Fed’s next moves, with the upcoming NFP report providing further direction.