Budget Week for UK

Looking at the news wires this morning has more than a hint of déjà vu. Sterling is holding onto recent gains but isn’t making any more headway at the moment. For example, the GBPEUR rate is still above €1.18 failed to make the widely expected break above €1.1875. The GBPUSD rate is still trapped below $.3850 and has settled back to $1.3770 as of this morning.

Sterling may be shunted around by this week’s UK budget announcements. Chancellor of the Exchequer, Rishi Sunak has made it quite clear that his budget will include substantial public sector expenditure. What he hasn’t been clear about is how he is going to pay for all this extra expenditure on top of the enormous cost of the financial support he put in place during the COVID lockdown. Undoubtedly, taxes will have to rise and no politician wants to be doing that at any time near an election. So there is a pretty good chance the UK will see some tax increases over the next 12 months or so.

Fed Chairman says taper but don’t hike

There wasn’t a great deal of overnight news to change that pattern. We did hear that the chairman of the US Federal Reserve, Jerome Powell has voiced his support for a reduction in the feds bond-buying programme but showed no interest in raising interest rates at this stage. His comments have lent some support to the US dollar, which has gained a quarter of a cent against the euro overnight.

‘On hold’ interest rate decisions expected from several central banks

Monday doesn’t bring an awful lot of data for traders to work with. This morning will bring German business expectations and business climate indices from the Ifo institute. The rest of the day was dominated by central bankers to bring speeches. And central banks will play a major part in the week ahead as well. The Bank of Canada will make its interest rate announcements on Wednesday but no change is forecast. The Bank of Japan will issue its monetary policy statement on Thursday And they too are expected to leave their base rate on hold. The European Central Bank will make their interest rate announcements later on Thursday as well. There was a very faint chance the ECB Could move their base rates but few analysts are forecasting that.

We will also see some economic growth data from the US on Thursday, from Germany on Friday and from Canada on Friday as well. Once we weave in inflation and resale sales data from Australia, Inflation data from the eurozone and some housing sector data from the US, the scene is set for a very lively last week of October. Undoubtedly sales of sweets and witch-related paraphernalia will be up this week. I think that’s a forecast I’d be happy to make.

And it is International Greasy Food Day. I am guessing many will have taken part even before they knew they were participating. I think a Full-English Breakfast more than qualifies, as does anything with Mc in front of its name.

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