Yesterday, the Bank of England (BoE) cut interest rates by 25bps as expected, with only one dissenter, who voted to keep rates where they were. However, the Bank warned that the recent budget will drive inflation up by as much as 0.50%, suggesting the BoE will refrain from cutting rates too much too quickly.
Governor Bailey did caveat this comment with the suggestion that should the economy evolve as expected they will continue to cut rates gradually. Yields on gilts spiked as a result and the odds of another 25 bps cut in December decreased to 23%.
GBP spiked with GBPEUR attempting to trade closer to this year's highs.
USD gave up some of the gains sparked by Trump's win, with markets perhaps a tad nervous of the Federal Reserve (Fed) meeting in the evening. The Fed followed the BoE’s lead and also cut rates by 25 bps, as was widely expected, but indicated further cuts will be slower. Powell refrained from discussing the impact of Trump's election as President. Markets still see a 50% chance of a 25bps cut in December.
*Daily move - against G10 rates at 7:30am, 08.11.24
** Indicative rates - interbank rates at 7:30am, 08.11.24
Today, we remain focused on the medium term picture and the ramifications of what a Trump presidency means for the markets should he impose tax cuts and tariffs.
The European Central Bank's (ECB) Stournaras commented yesterday that should Trump follow through with his campaign promises on tariffs and fiscal policy there will likely be an inflationary impact on the US economy, a negative impact on the European economy and implications on exchange rates – a notion shared by most in the market at present. Time will tell but suffice it to say markets remain primed for volatile times ahead.
Markets have started the day lower as China’s CNY6t fiscal plan to support local governments was perceived as underwhelming. As a result, both EUR and AUD have weakened on the back of this.
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