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EUR/GBP: Pound falls to 2-month low against euro as BOE rate hiking cycle likely over

BOE officials vote 5-4 to keep rates on hold, first pause in almost 2-years Traders are no longer fully pricing in anymore quarter point rate rises Global…

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4 weeks ago

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  • BOE officials vote 5-4 to keep rates on hold, first pause in almost 2-years
  • Traders are no longer fully pricing in anymore quarter point rate rises
  • Global bond market selloff saw Gilts rise 8.4bps to 4.292%

The British pound went into freefall mode after the BOE unexpectedly kept rates on hold.  The outlook has dramatically changed in a few weeks and investors are concerned about growth prospects. BOE governor Bailey noted that it’s premature to talk about rate cuts and right now it seems that if growth deteriorates going forward, they will likely not need to deliver any more hikes.  Inflation data is still very troubling and has a long way to come down before policymakers will want to even consider cutting rates.

US stocks are tumbling as a global market selloff has investors rattled that interest rates are not going to come down anytime soon.  Higher for longer could eventually translate into no Fed rate cuts in 2024.  The Fed sees a labor market that is not weakening and the key drivers of inflation are still likely to keep prices elevated.  Today’s jobless claims data shows that mass layoffs haven’t started yet, which should support consumer spending trends.  Existing home sales are weakening and that will likely continue, while the volatile Philly Fed showed broad weakness, while prices paid and received both increased.

While the market is believing the BOE and ECB might be done raising rates, rough economic times are quickly coming to Europe as both the Fed will keep the global bond market selloff going and as OPEC+ will keep energy prices heading higher.

BOE

The British pound fell to the lowest levels in six months after BOE decided to keep rates on hold at 5.25%.  At the start of the month, FX markets thought the BOE would be delivering two quarter-point rate rises and now it looks like they are done tightening.  The vote was 5-4, as Cunliffe, Greene, Haskel, and Mann supported a 25bps rate rise.  This pause in the BOE rate hiking cycle will likely be met with quickly deteriorating data that could support the argument that they are done.

The pound has been under pressure since mid-July so the downside momentum might be limited.  A lot of the bad news has been priced in, so we might see prices stabilize around the 1.2075 region. The 1.20 level is a huge price barrier but that won’t be tested unless US growth exceptionalism remains the dominant theme over the coming weeks.

EUR/GBP Daily Chart

The surprise BOE hold sent the British pound to the weakest levels in two months against the euro. Price action on the EUR/GBP daily chart shows price has major resistance from the both the psychological 0.8700 level and the 200-day SMA.  If bullish momentum continues, upside targets include the 0.8738 level followed by 0.8790.  To the downside, 0.8625 provides initial support.  Major support resides at the 0.8545 level.

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EU Wants To Increase Ukraine Aid By €50 Billion Despite Corruption Concerns

EU Wants To Increase Ukraine Aid By €50 Billion Despite Corruption Concerns

Via Remix News,

The European Union plans to set up a fund called…

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54 mins ago

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October 18, 2023

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EU Wants To Increase Ukraine Aid By €50 Billion Despite Corruption Concerns

Via Remix News,

The European Union plans to set up a fund called the Ukraine Facility, under which a new credit line for Ukraine would be opened in the amount of €50 billion for the period 2024-2027, but there are growing concerns about corruption.

EU budget commissioner Johannes Hahn.

The facility would provide assistance to Ukraine in three pillars. The first pillar would provide financial assistance to Ukraine, the second would support and finance investment, and under the third pillar, Brussels would help Ukraine plan the reforms needed to join the European Union. A specific feature of the Ukraine Facility is that frozen Russian assets would be confiscated and incorporated into the assistance model.

However, support for Ukraine remains a divisive issue in Brussels. Although the EU is keen to continue providing aid to a country at war, it is undeniable that Ukraine features sky-high levels of corruption and the “rule of law” fell far short of EU standards even before the war broke out, let alone during it. This came to the fore in Strasbourg during Monday’s plenary session when the Ukraine Facility was debated.

MEPs Michael Gahler and Eider Gardiazabal Rubial, the proponents of the report, said that the €50 billion credit line is a significant commitment by the European Union. They argued that Ukraine needs to improve corruption rates, the independence of its judiciary, the fight against oligarchs, and the fight against organized crime, but these efforts can be successful if complemented by the private sector.

Due to the corruption situation, several MEPs also expressed concerns about whether EU funds will go where they are supposed to. Roman Haider of the Austrian Freedom Party (FPÖ) complained that while sanctions are not working and the European economy has failed, it is worth considering whether it is worth investing another €50 billion in Ukraine, a country that is corrupt at all levels.

At the end of the agenda point, Johannes Hahn, commissioner for budget and administrative affairs of the European Commission, spoke on behalf of the commission, reminding the critical voices that “we Europeans must clearly support Ukraine.”

The politician also said that so far €80 billion in aid had been made available to Ukraine in various forms, including military assistance, and that the EU would support Ukraine as long as it needed it.

Tyler Durden Wed, 10/18/2023 - 02:00

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International

Where’s The Best Internet In Europe

Where’s The Best Internet In Europe

The channel island of Jersey has been crowned as Europe’s broadband champion of 2023, with an average…

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54 mins ago

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October 18, 2023

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Where's The Best Internet In Europe

The channel island of Jersey has been crowned as Europe’s broadband champion of 2023, with an average download speed of 265 megabits per second (Mbps).

As Statista's Anna Fleck reports, this is according to an annual study by cable.co.uk, based on the network connection speeds found in 220 countries and territories around the world. Jersey is officially a part of the British Islands as a ‘Crown Dependency’, but it is self-governing and not a part of the United Kingdom.

You will find more infographics at Statista

Liechtenstein, Iceland, Gibraltar and Andorra complete the top five in the European roundup, with average download speeds of between 190 and 250 megabits per second.

These five places are also among the top ten locations in the world in 2023. At the lower end of the scale among the European countries and territories are Croatia and Albania, where the average download speed is less than 30 megabits per second.

The size of a service area has an impact on its internet speed.

For instance, countries or territories like Luxembourg, Liechtenstein or Jersey have the advantage of having to provide service over a smaller area to that of larger countries such as Germany or Italy.

According to cable.co.uk, the overall average speed for the globe is speeding up.

Where the world had an average download speed of just 7.41Mbps in 2017, it has risen to 46.79Mbps this year.

Tyler Durden Wed, 10/18/2023 - 02:45

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International

EUR/AUD potential short-term downside pressure after upbeat China data

China’s Q3 GDP, Retail Sales, and Industrial Production for September beat expectations. China’s Country Garden is still at risk of an imminent default…

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2 hours ago

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October 18, 2023

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  • China’s Q3 GDP, Retail Sales, and Industrial Production for September beat expectations.
  • China’s Country Garden is still at risk of an imminent default as its grace period of overdue bond coupon payments of US$15.4 million expires today.
  • The FX market is ignoring the default risk of Country Garden as the offshore yuan (CHN) has continued to trade sideways against the US dollar since 28 September.
  • The resilience of CNH against the US dollar has triggered a dissipating US dollar strength movement against CHH’s proxies (AUD & SGD).

China’s trio of key economic data has managed to surpass expectations to the upside where Q3 GDP came in at 4.9% y/y, above consensus estimates of 4/4% but below Q2 print of 6.3% y/y. Growth in retail sales for September rose at the fastest pace in four months; 5.5% y/y accelerated from 4.6% y/y in August and beat expectations of 4.9% y/y.

Industrial production also managed to beat expectations marginally as it grew 4.5% y/y in September, above consensus estimates of 4.3% y/y but unchanged from 4.5% y/y in August.

Overall, the current targeted approach of expansionary fiscal and monetary policies adopted by China’s top policymakers seems to be working at this juncture and has negated the risk of a deflationary spiral triggered by a prolonged property market crisis and weak external demand. Also, a growing hope that China will be able to meet its 2023 official annual GDP growth target of around 5%.

Liquidity crunch is still lingering in China’s property market

However, the coast is not all clear yet to bring out the champagnes for an early celebration as severe liquidity crunch conditions are still lingering in China’s property market where the canary in the coal mine now is Country Garden, the largest private property developer.

Time is running out for Country Garden to restructure its overdue coupon payments of US$15.4 million of a public dollar bond as its grace period expires today, 18 October where a no payment will trigger a default clause. Even if Country Garden manages to doge the “default bullet” today, it still has a slew of overdue coupon payments of dollar bonds where their respective grace periods are expiring soon with the next one on 27 October for overdue coupon payments that amount to US$40 million.

FX market is ignoring the heightened default risk of Country Garden

Fig 1:  USD major pairs rolling 5-day performance as of 18 Oct 2023 (Source: TradingView, click to enlarge chart)

Interestingly, current short-term price action movements depicted in the foreign exchange market are not pricing in the potential imminent default of Country Garden that can trigger a systemic risk in China and even globally. The offshore yuan (CNH) has been resilient against the recent US strength seen against the European currencies (EUR & GBP). The USD/CNH rate has managed to hold steady below a minor range resistance of 7.3280 since 28 September.

The current bout of sideways movement seen in the USD/CNH has managed to trigger a minor US dollar underperformance against the yuan’s proxies such as the AUD, and SGD. Based on a five-day rolling performance basis as of 18 October 2023, the USD strength against the AUD has dissipated since Tuesday, 17 October, and the USD/AUD has now recorded a gain of just +0.54% at this time of the writing from around +1.25% earlier.

EUR/AUD bearish reaction from 50-day moving average

Fig 2:  EUR/AUD minor short-term trend as of 18 Oct 2023 (Source: TradingView, click to enlarge chart)

One of the AUD cross pairs that is being impacted by the current set of rosy China’s key economic data is the EUR/AUD.

In the lens of technical analysis, the current price action movements of EUR/AUD indicate a further potential corrective decline at least in the short term.

Several bearish elements have emerged; the recent +170 pips rebound from its minor swing low of 12 October 2023 has stalled right at the 50-day moving average where the EUR/AUD has been trading below it in the last four weeks.

The 4-hour RSI momentum indicator has staged a momentum bearish breakdown below a parallel ascending support at around the 50 level and has not reached the oversold condition (below 30).

These observations suggest that short-term downside momentum has resurfaced which in turn supports a further potential down move in EUR/AUD.

Watch the near-term support at 1.6550 (also the 20-day moving average) and a break below it may see a further slide to retest the 29 September 2023 swing low area of 1.6360/6320 in the first step.

However, a clearance above the 1.6710 key short-term pivotal resistance invalidates the bearish tone for a squeeze up towards the next intermediate resistance at 1.6890 (minor range top from 25 August/5 September 2023 and the 76.4% Fibonacci retracement of the prior minor short-term downtrend phase from 17 August 2023 high to 29 September 2023 low).

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