Markets Brace for UK Budget and U.S. Employment Data This Week
GBP
GBP/USD has risen, currently trading at 1.2967 (interbank), while GBP/EUR is trading at 1.1991 (interbank).
All eyes are on Wednesday when Rachel Reeves is expected to deliver Labour’s first Budget, making history as the first female chancellor to do so. Reeves has indicated the budget will include “tough decisions,” blaming the previous Conservative government for leaving a £22bn gap in public finances.
It is anticipated that employer national insurance contributions will be increased, with Labour clarifying that its pre-election pledge not to raise NI only applied to employees. The budget may also involve extending the freeze on income tax thresholds, leading more people to higher tax brackets over time as inflation progresses.
Ministers are reportedly considering raising inheritance tax, adjusting VAT on private school fees, and possibly making changes to fuel duty and winter fuel payments.
Former Bank of England governor Mervyn King has cautioned that additional borrowing could push interest rates higher, as financial markets will demand a higher rate to account for increased debt.
No significant events are scheduled for today
EUR
EUR/USD is currently trading at 1.0815 (interbank).
The EUR/USD has edged higher this morning has edged this morning after reaching a one-year low last week.
Furthermore, ECB Governing Council member Klaas Knot emphasized on Saturday the importance of "keeping all options open" to manage potential risks to growth and inflation.
This week will see Germany, Spain, France, and Italy are all scheduled to release their preliminary CPIs for October and third-quarter GDP figures along with the Eurozone's composite flash consumer price index (CPI) data.
Headline inflation fell to 1.7% year-on-year, below the 2% target, marking the lowest level since April 2021.
The ECB expects inflation to rise again in October due to base effects. Consensus forecasts suggest the annual CPI may have increased to 1.9% in October, while core inflation may have slightly decreased to 2.6% year-on-year.
Today’s Events (GMT):
15:45 - ECB's De Guindos Speaks
USD
The Dollar Index, which tracks the dollar against a basket of major currencies, stands at 104.30, on course for its best month since April 2022.
New polls suggest Vice President Kamala Harris has a slight edge over former President Donald Trump, though most show a close race, making the upcoming U.S. election highly unpredictable. Trump’s Republican allies have faced recent legal setbacks in key battleground states, with at least 10 court losses in the past three weeks, potentially impacting the November 5 contest.
This week, markets await Friday’s employment report, expected to reveal slower job growth of 111,000 in October, while unemployment is forecast to remain at 4.1%.
The Fed has signalled a 25-basis-point rate cut in November following September’s 50-bps reduction, though this week’s economic data could still shape its decision. Key releases include Wednesday’s third-quarter GDP estimate, anticipated at 3% annual growth, and Thursday’s report on personal income and spending, featuring the Fed’s preferred inflation measure, the core PCE index.
No significant events are scheduled for today
CAD
USD/CAD is currently trading at 1.3890 (interbank), the highest level since the beginning of August.
Last week, the BoC cut interest rates by 50 basis points to stimulate growth and spending, both of which have been subdued despite robust population growth driven by immigration.
Furthermore, Retail sales rose by 0.4% in September, marking the third consecutive monthly increase, following another 0.4% rise in August but slightly below expectations of 0.5%; however, core retail sales declined by 0.4%.
This week, BoC Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers will appear before the House of Commons Standing Committee on Finance on Tuesday, followed by the Standing Senate Committee on Banking, Commerce, and the Economy on Wednesday.
Canada’s GDP by industry figures for August are also due on Thursday, alongside a preliminary September estimate with analysts predict growth to slow towards year-end, below BoC forecasts.
Oil prices are lower this week, with Brent crude currently at $72.54 per barrel and West Texas Intermediate (WTI) at $68.29 per barrel.
Today’s Events (GMT):
08:30 - Wholesale Sales (Sep) – Previous: -0.6%
13:30 - BoC Gov Macklem Speaks
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