ACM Update 24-11-25
UK inflation dropped to 3.6% in October, the first slowing in the metric since March. This gave optimism for a festive interest rate cut to come from the Bank of England next month. Meanwhile, taxes dominated PMQs in the House of Commons, ahead of this week’s UK Budget.
US data began to filter through again post-shutdown, where September’s Non-Farm Payrolls surprised to the upside. Headline unemployment also produced a rise.
This week brings the long-awaited Autumn Budget from Rachel Reeves, the ECB minutes from their latest meeting, as well as a US Bank Holiday in the form of Thanksgiving on Thursday.
Inflation was the big UK data release last week, where we saw a drop from 3.8% to 3.6% in October. This wasn’t quite as much as some estimates had projected but still produced the first drop since Q1 of this year. Food prices bucked the figures though, rising back up slightly after a fall in September.
A drop is a drop however, which may be enough to tip the 5-4 vote to hold policy in the last Bank of England meeting, to a 5-4 for a cut on 18th December. The Bank’s Governor, Andrew Bailey, said as recently as this month that he would need to see a drop off in the October reading to be confident that price growth is slowing, thus this may tick that box for him.
The slowing will also come as a relief to Chancellor Rachel Reeves. An interest rate cut would certainly help her Budget headroom this Wednesday, given the impact it would have on the Government’s eye-watering debt position. UK growth too should benefit from a rate cut by increasing disposable income for mortgage payers. We finally get to hear Reeves’ plan for UK finances this Wednesday lunchtime in the House of Commons.
However, the nervousness around tax rises certainly impacted high street spending in October. The retail sales figures showed a like for like drop of -1.1% compared to the previous month, demonstrating caution from buyers in the run up to the Budget. The will she/won’t she on tax hikes during the month, was seen as the main reason for this.
The above marked the first month-on-month fall since May, according to the ONS (Office for National Statistics) figures. October was also just a mere 0.2% higher than a year prior. The figures saw the Pound lose ground on Friday morning. Retailers will be hoping for a better November, perhaps with the assistance of Black Friday discounts.
We also had opinions from Bank of England policymakers last week to digest. Swati Dhingra continued her stance of wanting to see “rates cut to neutral fairly soon”. She summarised her October call for a rate cut by suggesting current policy remained too restrictive, suggest interest rates needed to move lower.
On the other side of the voting spectrum we had Catherine Mann and Huw Pill. Mann maintained her recent position that firms pricing of items still points towards an “upside inflation risk”. Huw Pill meanwhile doesn’t expect much shift in his policy view, where he chooses to focus on high pay growth fuelling inflation. Wage growth was 4.6% in the most recent data, still a percentage point higher than inflation.
Overall, sterling traded narrowly against both the Euro and US Dollar last week, with marginal gains in the latter part of the week. Movements on GBP-USD can be seen in the chart below:
On the Dollar side, US data started to filter through as the BLS (Bureau for Labor Statistics) began to publish figures again following the shutdown. The majority thus far have been employment-related, with September’s Non-Farm Payrolls figures first up. These showed a larger than expected improvement of 119,000 jobs added to the economy in the month, versus the 50,000 forecast.
August however was revised downwards (to -4,000), producing a negative figure for the first time since the pandemic. The BLS also opted to cancel entirely the October payrolls report, after the shutdown prevented the collection of data. The reading will be combined with the November figure, to be published on December 16th. This is crucially a week after the Federal Reserve’s next rate meeting.
The lack of October jobs data also means the overall unemployment rate for October won’t be established. One could argue that this is good news for Trump, given September’s figure rose to 4.4% for the month. This was the highest reading since November 2021, creating more concerns about a US slowdown. The Dollar weakened accordingly on Thursday afternoon.
The Federal Reserve meeting minutes from the end of October meeting were also published. These showed an ever-growing divide in policy direction for the December vote. A growing number of members felt that another cut in the next meeting would be undoing four years of good work from the Fed, in controlling inflation.
This continues the Powell rhetoric of a December rate cut being not a “foregone conclusion”. We also had a host of Fed policymaker speeches last week, which continued to display the divide. The chances of a pre-Christmas rate cut seem to be dwindling.
In Europe, inflation continues to not be a concern for the ECB’s committee. The Final CPI reading for October came in fractionally above target at 2.1%, having nudged up to 2.2% in October. As before, this should allow policymakers to keep rates constant in their next meeting (18th December) and focus on economic growth.
President Christine Lagarde used a European Finance Week speech in Frankfurt to urge the continent to remove domestic trade barriers, seeing these as a bigger issue than US tariffs. She believes this is what is needed to boost Eurozone growth. ECB colleague Joachim Nagel echoed the comments.
Meanwhile, amidst all the excitement about a replacement for Jerome Powell in the US, the ECB are about the start the process of finding a replacement for Christine Lagarde for when her term ends in 2027. The aforementioned Joachim Nagel of the Bundesbank is one of the front runners, whilst Spain is also keen to throw a candidate into the mix.
Movements on GBP-EUR can be seen in the chart below:
The week ahead:
Monday – ECB Lagarde speech (14:50), ECB Nagel speech (17:45), Federal Budget Balance (19:00)
Tuesday – US Retail Sales & PPI inflation (13:30), US Consumer Confidence (15:00)
Wednesday – Reserve Bank of New Zealand rate announcement (01:00), UK Autumn Budget (12:30), US Preliminary GDP, Durable Goods & US Core PCE (13:30), Federal Reserve Beige Book (19:00)
Thursday – US BANK HOLIDAY, ECB Meeting Minutes (12:30)
Friday – German CPI (07:00), French CPI (07:45), Spanish CPI (08:00), ECB Nagel speech (10:00)
UK Budget week is finally upon us. Will there be much to cheer about for those in the UK, and will there be anything to cheer about for those hoping for a sterling recovery? As mentioned last week, GBP has suffered regardless of what Reeves has said recently. It lost ground both due to the suggestion of tax hikes impacting the economy, as well as when the proposal was withdrawn as that would increase debt. Wednesday lunchtime will be an interesting one.
In the US, more data releases will continue to filter through post-shutdown. Monday evening’s Federal Budget Balance release will show the state of the ever-growing US debt mountain. This isn’t guaranteed to be released on schedule though, as US data release remain up in the air. US retail sales, PPI inflation and consumer confidence data should all be published on Tuesday.
Wednesday will also contain US Preliminary GDP numbers for Q3, Core PCE inflation for October and the Fed’s Beige Book release. From then on, we can expect a quiet end to the week with the Thanksgiving bank holiday in the US on Thursday, followed by the Black Friday spending bonanza.
In Europe, policymakers Christine Lagarde and Joachim Nagel both hold speeches on Monday afternoon, whilst the ECB minutes are the major release on Thursday. These will show any narrative from the last meeting, potentially on the topic of a further cut required going forwards. Inflation data from various corners of the continent close out the week on Friday.
Plenty to focus on this week, despite a relatively small amount of market movement last week. The UK budget will definitely cause news headlines, but whether it will impact foreign exchange markets remains to be seen. Wednesday lunchtime shortly after midday sees Reeves take to the podium.
For any currency requirements this week, make sure to reach out to the Aston team to discuss how we can assist.
Have a great week.
