Written by the Convera Market Insights team
Greenback eases as US GDP disappoints
The US dollar was mostly lower on Wednesday following the weaker than expected September-quarter GDP numbers.
US September-quarter GDP was reported at 2.8% in annual terms versus the 3.0% expected.
The USD saw the biggest losses in APAC despite an early drop in the Australian dollar after September-quarter inflation dropped more quickly than expected. The Aussie later recovered to end 0.5% higher.
In other markets, the EUR/USD gained while the USD/CAD eased from recent highs. The GBP was more unsettled after yesterday’s UK Budget.
Looking forward, the Bank of Japan and Chinese PMIs are the highlights in Asia, while US personal consumption and expenditure (PCE), a key measure of US inflation, is released later.
UK markets volatile after Budget
Sterling was volatile in the wake of the Labour government’s first Budget. GBP/USD cut early losses but remained well below $1.30 despite traders reducing expectations for Bank of England (BoE) rate cuts. Meanwhile, the swing between the intraday high and low in the 10-year gilt yield was the second-largest this year.
UK Chancellor Rachel Reeves introduced £40 billion in tax increases to boost public services and address a £22 billion fiscal hole inherited from the previous government. Key measures include a 1.2 percentage point rise in employers’ national insurance and a rise in capital gains tax. It is the biggest tax-raising Budget in at least half a century. But big spending increases are coming too, so the prospect of higher growth has led investors to curtail expectations for BoE rate cuts, though a 25bps cut is still priced in next week.
The pound is trading choppy though, priced by the trade-off between the fiscal/monetary mix versus the fiscal risk premium of extra gilt supply. Slightly looser fiscal and tighter monetary policy should be supportive for GBP, but the fact yields are rising and the pound is falling suggests a degree of uncertainty and a lack of confidence in UK policy amongst market participants.
China manufacturing PMI key
In terms of technicals, the USD/CNY presents an unclear chart setup due to the bullish whipsaw of the major inflection at 7.06 and the USD/CNY’s ongoing fight with the 7.14–7.146 Fibonacci retracement barrier.
For now, 7.1804–7.1914 are the next following key resistance levels, with key tactical support still between 7.046 and 7.097.
As per the chart below, the key rate differential favors a higher trend in USD/CNY given the strong correlation.
From here, all eyes are on official manufacturing PMI. Although it climbed by only 1.2 percentage points to 54.5 in October from 53.3 in September, the Emerging Industries PMI (EPMI), a non-seasonally adjusted leading indicator of the official PMI, was still far below its historical October average of 59.7 for 2014–23.
Additionally, the monthly consecutive growth of 1.2 pp is much less than the 4.8 pp historical average.
We anticipate that the official manufacturing PMI will remain unchanged from the September level, at 49.8 in October.
Greenback slipping
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 28 October – 1 November
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
