Morning Brief – FX Market Snapshot

FX Market Snapshot

With the USD little changed at EUR/USD 0.9860 and GBP opening the week in Asian markets at GBP/USD 1.1360 and GBP/EUR 1.1530, the big story which markets will be focusing on is where USD/JPY 149.05 goes next. Having broken through the psychological barrier of 150 last week, the question is not if but when the markets test that level once again. Much will depend on the FOMC meeting referred to below on November 1-2.

UK plc

It may suit their narrative for some market commentators to pounce on the fact that Moody’s the rating agency changed their outlook for the UK from stable to negative over the weekend. The Moody’s outlook downgrade was based on two factors: fiscal policy predictability and the debt affordability due to persistent inflation. While not minimizing let alone ignoring the economic headwinds faced by the UK, it should be remembered that the UK’s credit rating remains unchanged at Aa3 which is the fourth highest rating on the scale.

USA

With the Federal Reserve now in its blackout period ahead of the next policy meeting on November 1-2, the market is nervous on the back of the volume of indications from Fed members for more large rate rises having been turned up last week. Over the weekend the mood music has turned to concern that the Federal Reserve may strangle the economy by raising interest rates too much. In part this concern is due to the perception that Federal Reserve policy makers were slow to react to the inflationary pressures building and held off too long before talking and acting tough on quelling those pressures by raising rates. the all important 10 Year Treasury yield on Friday night stood at 4.21%.

Inflation

Last week’s CPI release in the UK showed inflation at 10.1%. The tale of the tomato serves to illustrate just how consumers have been affected and why. Price per kilo for tomatoes stood at GBP 2.14 in 2021 but in September 2022 it had rocketed to

GBP 2.80 or an increase of 31%. Starting with tomato seeds which have risen by 20% in price, that is followed by higher greenhouse heating and transport costs that are both priced in USD. Labour costs, packaging and finally the imposition of a 35% surcharge on Russian fertiliser completes the picture of how this single component to the consumers’ grocery bills have been hit.

Man on The Moon

One of the finest songs on R.E.M’s album Automatic for The People, Man on the Moon and the album rocketed to the top of the charts upon release exactly 30 years ago today in 1992. Here is a reminder of why:

Mott the Hoople and the game of Life. Yeah, yeah, yeah, yeah.
Andy Kaufman in the wrestling match. Yeah, yeah, yeah, yeah.
Monopoly, Twenty one, checkers, and chess. Yeah, yeah, yeah, yeah.
Mister Fred Blassie in a breakfast mess. Yeah, yeah, yeah, yeah.
Let’s play Twister, let’s play Risk. Yeah, yeah, yeah, yeah.
See you heaven if you make the list. Yeah, yeah, yeah, yeah.

Now, Andy did you hear about this one?
Tell me, are you locked in the punch?
Andy are you goofing on Elvis? Hey, baby.
Are we losing touch?
If you believed they put a man on the moon, man on the moon.
If you believe there’s nothing up his sleeve, then nothing is cool.

Moses went walking with the staff of wood. Yeah, yeah, yeah, yeah.
Newton got beaned by the apple good. Yeah, yeah, yeah, yeah.
Egypt was troubled by the horrible asp. Yeah, yeah, yeah, yeah.
Mister Charles Darwin had the gall to ask. Yeah, yeah, yeah, yeah.

Discussion and Analysis by Humphrey Percy, Chairman and Founder

Click Here to Subscribe to the SGM-FX Newsletter