BoE Deputy Dispels Hopes of Rate Hike
The Pound dropped against the US Dollar and the Euro as Sir John Cunliffe, Bank of England (BoE) deputy governor, said that raising borrowing costs is “an open question.” His comment watered down expectations for an interest rate hike in the upcoming Monetary Policy Committee meeting. Michel Barnier, who leads the EU negotiating team on Brexit, said that the only options for Britain are a single market membership such as Norway’s, or a Canada-like trade deal.
An IHS Markit’s survey showed that private sector growth in the Eurozone slowed down during October, but, as economists believe, the recovery of the economy in the Euro-bloc is still strong. In the US, Dow Jones and Nasdaq closed in red after gaining ground for six consecutive days.
Pound Sterling – UK Markets
Today, the Pound inched lower against the US Dollar with the exchange rate set at $1.31. Sterling dropped against the Euro with the exchange rate set at €1.12. Sir John Cunliffe drew attention when he talked about raising borrowing costs in an interview during his visit in Wales.
Cunliffe, who is the BoE deputy governor, said that since the UK economy is suffering from weak economic growth, hiking interest rates in November remains an “open question.” “If the BoE’s forecast comes to pass over the forecast period, interest rates will need to go up. They won’t need to go up as far and as fast as they did before the crisis, but over the forecast period of three years, rates will rise,” noted Cunliffe. The BoE deputy governor added that he doesn’t see London being replicated as financial centre on the continent, as this would need “an awful lot of critical mass of knowledge and expertise.”
Jean-Claude Juncker told the European Parliament (EP) in Strasbourg that “the EU wants a fair deal with Britain and will have a fair deal.” Juncker noted that the European Commission (EC) is no friend to anyone who doesn’t want a deal. The Luxemburgish politician assured that the EC isn’t negotiating in a hostile mood with the British side. Michel Barnier, the EU chief Brexit negotiator, said that a trade deal between the UK and the EU could take three years to negotiate. Barnier stressed that there can’t be “a combination possible between a free trade deal and internal market membership. Out is out.”
US Dollar – US Markets
The US Dollar fell against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY) also remained stable at 93.84. In the afternoon, IHS Markit will publish October’s Services and Manufacturing PMIs.
Donald Trump is going to visit Beijing, as a part of his trip to Asia in early November, and aims at pressing the Chinese President Xi Jinping to fully implement the United Nations (UN) Security Council sanctions against North Korea. China has demanded from North Korea to stop testing long-range missiles, but, at the same time, notes that South Korea and the US share responsibility for the tension because of the military drills they conduct. Trump is also expected to discuss trade because, as he has noted in his speeches, US companies face too many obstacles to gain access to the Chinese markets.
The Dow Jones Industrial Index and the Nasdaq Composite Index closed in the red on Monday, for the first time after a six-day winning streak. Walmart and Nike were the best performers. On the other side, General Electric (GE) was a disappointment, shedding 6.27%. The reason for the drop were two analysts’ reports from Morgan Stanley and UBS, reducing their GE share ratings because of fears for upcoming dividend cuts.
Euro – European Markets
The Euro rose against the US Dollar with the exchange rate set at $1.17. IHS Markit published data regarding October’s manufacturing and services PMIs coming from Eurozone countries and the Eurozone as a whole.
Markit’s data showed that companies across the Euro-bloc experienced a slower than expected rate of growth during October. The sector of services in the Eurozone fell short of forecasts, while the manufacturing sector performed better than anticipated. The result was also a drop in the composite PMI. Despite the fall, figures indicate that the Eurozone’s economy is still strong according to economists.
Markit’s report said that Germany and France led the way in growth, while peripheral countries struggled to follow. The French composite PMI came in above Germany’s for the third time in the last five years. The figure was also a six-year high for the French economy. Germany’s manufacturing PMI surprised on the upside, but the composite PMI was dragged down, missing expectations, by a weak growth in the services sector.
Other Currencies – Highlights
Sterling strengthened against the Australian Dollar, trading at 1.69 AUD. Treasurer Scott Morrison, commenting on a report published by the Productivity Commission, said that “despite the technological developments, the gains in productivity from technical change appear to be diminishing.” Morrison talked about how the old-styled healthcare system doesn’t comply with the needs of an ageing population and of the economy. The Treasurer also criticised the scepticism of Australians when it comes to reforms. “The price of a generation of Australians growing up without having known a recession is that reform comes more stubbornly,” said Morrison.
The Pound jumped against the New Zealand Dollar, trading at 1.90 NZD. The Kiwi fell when Jacinda Ardern said that there would be a review and reforms on the Reserve Bank Act. Ardern said that the plan is for the Reserve Bank of New Zealand (RBNZ) to take into consideration the unemployment rate alongside price stability when it’s forming its monetary policy. Ardern also said that non-resident foreigners won’t be able to buy existing homes.
Sterling fell against the Czech Koruna, trading at 28.73 CZK. Andrej Babis, the winner of the parliamentary elections, nicknamed “Czech Donald Trump,” appears to face difficulties in forming a coalition government as every political party, so far, has refused to start talks with the ANO.