France’s budget woes widen bond spread with Germany
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Daily Currency Update
France’s political turmoil continues, with five prime ministers in 21 months. Fitch and S&P have renewed warnings on its credit rating, while some analysts now deem French bonds “uninvestable.” The country’s budget deficit remains the largest in the Eurozone, at nearly twice the ECB’s 3% limit.
The Pound underperformed its peers yesterday as markets priced in a growing likelihood that the Bank of England could cut rates by 25 basis points before year-end. Dovish expectations have risen amid signs of a weakening labour market. A recent Bank of England survey showed that while businesses plan to maintain existing staff levels, few expect to increase hiring through 2026.
In the United States, the Senate once again rejected both Democratic and Republican proposals to restore government funding. President Donald Trump warned that another failed vote could lead to layoffs in the federal workforce. The US Dollar Index - which measures the greenback against a basket of G7 currencies - traded firmly higher this week, supported by safe-haven flows as political uncertainty continues to ripple through Europe.
Key Movers
ECB President, Christine Lagarde, said this week that the disinflationary process is now over, while the bank's Vice President, Luis de Guindos, warned about geopolitical risks and weak domestic growth, suggesting the prospect of another rate cut is "on the table". President Lagarde and Bundesbank President Joachim Nagle are expected to make statements which will provide further insights into the bank's monetary policy.
In the UK, there are increased expectations that the Bank of England may cut rates once more at their November meeting. The monetary policy committee think Inflation is due to peak at 4% but of more concern is a slowing job market. For more clues markets will focus on a speech by BoE chief economist, Huw Pill, which is scheduled for later today.
Private equity giant Carlyle estimates that the US is adding a mere 15,000 jobs per month, the latest in a series of estimates that attempt to give a picture of the landscape while the Government shutdown persists. Markets are largely ignoring the shutdown as the previous fifteen were all resolved without any lingering damage to US assets. In the absence of firm data all eyes will turn to Fed policymakers who are due to speak later this week.
Expected Ranges
- GBP/USD: 1.3375 - 1.3425 ▼
- GBP/EUR: 1.1510 - 1.1560 ▼
- GBP/AUD: 2.0395 - 2.0445 ▼
- EUR/USD: 1.1585 - 1.1635 ▼