It’s all been about the interest rate decisions for the past few days and the scores from the latest round have been 25 basis point cuts for the USA and Canada and no change for Europe or Japan.
The winners and losers on the currency front have been, unpredictably, the US dollar gaining strongly, the euro rather tepidly, the Canadian dollar losing modestly and the Japanese yen losing the most of all.
The US dollar was supported by hawkish comments from Federal Reserve chair Jerome Powell that another rate cut in December is far from guaranteed.
It’s the Bank of England’s turn next week, but with most betting on no change – though that is far from certain – it is the fate of the chancellor Rachel Reeves and her Budget now less than a month away that is gripping the markets. She appears to have shrugged off calls for her resignation after failing to correctly licence her family home – currently rented out while she resides at 11 Downing Street – but the mood in politics and government remains febrile.
It’s not affecting just the currency markets. According to several reports, uncertainty over the Budget, and the tax rises it will now almost inevitably contain, is stifling the economy. In one survey of 400 business leaders, 75% said they were delaying crucial business decisions and investments.
Whatever happens in the month to come it seems likely that there will be reaction in the currency markets.
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There is no risk of tax rises in the USA, where President Trump returned from what he said was a successful (“12 out of 10”) meeting with President Xi Jinping of China. Even so, the S&P 500 dipped yesterday from its record high in response to cautious comments from the US Federal Reserve policymakers on future interest rate cuts.
We have just had the latest Nationwide House Price index which showed growth of UK house prices continuing – against expectations – to 2.4% year on year.
