UK assets tumbled yesterday as concerns around Rachel Reeves's Budget spread through markets. Gilt yields surged as the budget's seemingly inflationary measures prompted markets to scale back expectations for rate cuts by the Bank of England (BoE) over the coming year. Traditionally, fewer rate cuts would lead to a stronger GBP, however this doesn't seem to be the case at the moment. Investors are selling off UK assets, including the pound, as the market is willing to punish what it considers to be excessive borrowing.
The GBPUSD dipped to its lowest point in two months, while the GBPEUR reached a one-month trough.
EU CPI came in at 2% year-on-year, from 1.7% in September, which was higher than expected. The EUR continued to gain as markets reduced the odds of a 50bps cut in December, now assigning a 15% probability to it.
USD moves were muted ahead of today's job numbers, with core PCE numbers rising inline with expectations.
*Daily move - against G10 rates at 7:30am, 01.11.24
** Indicative rates - interbank rates at 7:30am, 01.11.24
Gilts have opened up lower this morning, suggesting that there may not be any respite for GBP today following Wednesday's Budget. Focus today falls on US job numbers where payrolls are expected to show only 101,000 jobs added in October given the severe weather encountered in the month. So, perhaps the hourly earnings will carry more weight today. Given how close we are to the elections, unless we get a blow out number then USD reaction would be muted.
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