28 October 2024

GBP

Following the UK general election in July, the first Labour budget since 2010 has been highly anticipated. Despite the press attention, speculation around many of the budget's outcomes has already begun, so the FX market reaction may be muted.  

However, depending on how the market interprets the announced measures, some pound volatility is still possible. 

Most importantly for UK-based individuals and businesses, the budget, which starts at 12:30 pm on Wednesday, will reveal considerably more about the Labour government's direction on tax, expenditure, and investment priorities for the coming years. 

Aside from the budget, the UK's economic data releases will be relatively quiet this week.

EUR

EU year-on-year inflation has dropped from a high of 10.7% in October 2022 to 1.7% in September 2024, indicating that the European Central Bank has successfully brought inflation closer to the 2% target.  

Over the past four years, we have seen the dangers of high inflation, but low inflation and deflation can also harm the economy. The ECB now faces the challenge of balancing interest rates and other measures to maintain inflation around 2%. 

This week, the latest CPI inflation data will be released on Thursday. It is forecast to come in at 1.9%. If the actual figure is higher than expected, it could lead to the ECB considering further interest rate cuts, which could weaken the euro. On the other hand, a lower-than-expected figure could mean no further rate cuts this year, strengthening the euro. 

USD

Current polling suggests Harris has an edge in the popular vote and potentially in key swing states. However, these races are within the margin of error, and a minor swing to Trump could see him comfortably win the deciding Electoral College votes to become the next President. 

With only eight days before the election on Tuesday 5th November, we are about to enter two crucial weeks with this week's UK budget and interest rate decisions from the Bank of England and the Federal Reserve on Thursday 7th November. Investors are already betting on rising volatility, with the dollar reaching a three-month high last week, potentially responding to a potential win from Trump, as well as indicators of a strong US economy. 

In terms of key data releases this week, the latest US non-farm payrolls data will be released on Friday at 12:30pm. Last month, we saw a surprising upside of 254k against a forecast of 147k, which significantly boosted the USD. While it's unlikely forecasters will miss the mark again so soon – anything is possible.  

This week's forecast is 111k, with anything higher than expected generally being positive for the USD. 

This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.