Pound (GBP) Implodes following Kwarteng’s Mini-Budget
The Pound (GBP) nosedived on Friday after the government’s mini-budget sent UK markets into meltdown. UK stocks and government bonds slumped and Sterling tumbled across the board, falling a whopping 3.5% against the US Dollar (USD).
Chancellor Kwasi Kwarteng announced £45bn in tax cuts to be funded through further borrowing. Economists are worried that the measures will lead to unmanageable debt, more persistent inflation, and higher interest rates. Meanwhile, investors are fast losing confidence in the government’s approach.
This week Sterling continued its fall, plunging to a record low against the US Dollar, though it has managed to claw back some losses. There are rumours that the Bank of England (BoE) will intervene, perhaps with an emergency rate hike. Any news could cause significant movement in GBP.
Euro (EUR) Slides as PMIs Reveal Third Month of Contracting Activity
The Euro (EUR) faced headwinds on Friday after the latest Eurozone PMIs printed worse than expected.
Both manufacturing and service sector activity showed larger-than-expected contractions in September, with overall business activity in its third consecutive month of negative growth. This dire snapshot of the Eurozone economy rattled EUR investors.
The latest business climate indicator from Germany could weigh on EUR this morning, having fallen more than forecast. In the afternoon, a speech from European Central Bank (ECB) President Christine Lagarde could drive movement. Will the ECB chief strike a hawkish tone, thereby boosting the Euro?
US Dollar (USD) Firms amid Risk-Off Trade and US PMIs
The US Dollar continued to strengthen at the end of last week, with the US Dollar index hitting a fresh 20-year high, as a souring market mood boosted the safe-haven currency.
Additionally, stronger-than-expected PMI results boosted the US Dollar. US manufacturing activity unexpectedly improved from 51.5 to 51.8, while service sector activity rose from 43.7 to 49.2, beating forecasts of 45.
Turning to today, risk appetite may drive the US Dollar through most of the session. Later on, speeches from several Federal Reserve officials could support the ‘Greenback’.
Canadian Dollar (CAD) Climbs despite Headwinds
The commodity-linked Canadian Dollar (CAD) strengthened against many of its peers on Friday, despite falling oil prices and a larger-than-forecast contraction in Canadian retail sales.
The upside seems to have come amid weakness in CAD’s rivals, along with the positive US PMIs. As America is the biggest buyer of Canadian exports, a strong US economy sometimes boosts the ‘Loonie’.
Canadian data is thin on the ground today, so CAD could trade on oil price dynamics.
Australian Dollar (AUD) Falls amid Souring Sentiment
The Australian Dollar (AUD) wavered lower overnight as a bearish market mood weighed on the risk-sensitive currency.
New Zealand Dollar (NZD) Subdued amid Cautious Mood
The New Zealand Dollar (NZD) was muted in overnight trade amid widespread risk aversion.