USD declined yesterday after a dip in treasury yields. This came as a bit of a surprise against the backdrop of better PMI numbers and lower-than-expected jobless claims.
GBP gained across the board despite disappointing PMI numbers, which came in lower than expected, and Chancellor Rachel Reeves' announcement that she will give herself an extra £53 billion of borrowing headroom by changing a key debt metric in next week's budget.
Whilst the International Monetary Fund (IMF) welcomed the decision, they have warned that the UK still needs to stabilise its debt, which currently is at a 60-year high.
PM Keir Starmer commented last night that Brits who get additional income from stock holdings don’t count as “working people,” suggesting there could be tax rises on investors in next week's budget.
*Daily move - against G10 rates at 7:30am, 25.10.24
** Indicative rates - interbank rates at 7:30am, 25.10.24
JPY is getting some attention this morning, ahead of snap elections in Japan, where the ruling coalition is at risk of losing its majority in the lower house of parliament.
As the weekend approaches, we might witness a brief pause in USD's recent surge, as much of the driving factors appear to have already been accounted for in the current market pricing. Any short-term softness on USD however will likely be temporary.
For GBP, the budget, and what it could mean for the gilts markets, remains a big risk factor. There was little reaction in gilts or GBP following Rachel Reeves' announcement yesterday. This perhaps suggests that there is no risk premium priced in. The downside risk for GBP could be large should we see wild swings in gilts.
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