The 20-day moving average of JPMorgan’s Global FX Volatility Index hit its highest level this month since January 2012.
When you consider some of the events that have happened over the last decade including: the eurozone debt crisis; the Brexit vote and aftermath; Trump’s election victory in 2016 and loss in 2020; the Covid pandemic and Russia’s invasion of the Ukraine in February, that is some statistic.
The Pound Is Up
Over 3.3% from this time last month against the Euro and is currently trading at a 2-month high!
Against the US Dollar, the Pound is up over 6.4% from this time last month and is currently trading at a 7-week high.
Against the Aussie Dollar, the Pound is up just under 7% up and is trading in touching distance of the 7-month high hit on 17 October.
British government 10-year gilt yields have now fallen to a 5-week low. That’s below what they were priced at before Kwasi Kwarteng’s ill-fated, not so mini-budget. To paraphrase the bond markets, the UK is now benefiting from a ‘dullness dividend’ rather than paying a ‘moron premium’ for its debt.
Last week, the ECB (European Central Bank) increased EU interest rates for the third meeting in a row to 1.5%, their highest level since 2009. Normally seen as a Euro positive, but not on this occasion. Mainly due to the ECB also saying they were going to carry on printing money, otherwise known by economists as Quantitative Easing (QE) until 2024, a much later date than analysts expected.
Bank of England Interest Rate Decision
This week it’s the turn of the Bank of England to make their latest monthly interest rate decision. Against all the recent political turmoil that saw Rishi Sunak take over after Liz Truss was ouste after just 7-weeks. And with UK inflation still officially at 10.1%, a 40-year high Chancellor Jeremy Hunt has announced a delay to the next budget from today – Halloween to the 17th of November. Probably good news for the economy and the Pound but not so good for headline writers in the main-stream media.
Let us all hope that the next 3 weeks of UK economic data plus the OBR (Office for Budget Responsibility) report makes less frightening reading than recent data releases to allow the Sunak government not to announce too many tax rises and austerity measures.
How Will History View The Short-Lived Truss Premiership?
Truss supporters will always suggest she was never given a proper chance to govern. Others will suggest she was a weak leader who tried to do too much, too quickly and badly.
The US economy rebounded in the third quarter of the year, growing by a higher-than-expected figure of 2.6%. But the Dollar is still weakening from its recent historic highs. Analysts are pondering whether the Federal Reserve will start to ease up on its aggressive interest rate decisions of 2022. We’ll find out soon enough, on Wednesday the 2nd of November, the day before the Bank of England rate announcement.
Democrats Wheel Out Obama In Last Ditch Attempt
The US mid-term elections, due on 8 November continue to look dire for the Democrats. President Obama has been wheeled out in a last-minute attempt to avoid the possibility of a Republican victory. Big enough to possibly retake both the Senate and House of Representatives. Thus enabling the Republicans to block any legislation proposed by the Biden White House.
The recent historic highs for the Dollar against the Pound have benefited the UK in some ways. This includes the UK seeing a record amount of US tourists flocking to Britain and also the dividends of UK companies listed on the stock exchange with USD based earnings has grown by over £6 billion for those shareholders of the companies in question.
Meanwhile, China’s Yuan currency has fallen to a 15-year low against the Dollar. Mainly due to investors reacting to President Xi’s ever stronger grip on political power.
Of course, currency market volatility can bring trouble but with careful monitoring can also bring opportunity.
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This week’s quote is from Winston Churchill
“The further back you can look, the further forward you are likely to see”.