The FX market seems like it is slowly winding down towards the Thanksgiving holidays, though month-end might offer something to work with before the week is truly over. But for today, the mood music remains rather lackadaisical with changes among major currencies being relatively muted. The dollar traded more mixed yesterday with a lack of appetite overall, leaving not much to work with in the new day as well.
The Japanese yen remains one of the key focus points with USD/JPY having ramped up to near 158.00 last week, stirring up talks of Tokyo intervention. That as we also saw EUR/JPY touched a record high of 182.00, with the pair holding above the 180.00 mark this week.
Besides that, the risk selloff did also put the Australian dollar in the spotlight with AUD/USD testing three-month lows before keeping a slight bounce. Amid the choppy risk sentiment we're seeing since last week, this will keep the aussie under the microscope amid further risk fluctuations - especially to the downside.
And coming up tomorrow, the British pound will be under major scrutiny as Rachel Reeves will deliver the UK Autumn Budget. Concerns surrounding the fiscal situation have seen EUR/GBP rise up to its highest since April 2023 earlier this month with price action still keeping closer to the 0.8800 mark for now.
As the UK Chancellor unveils her plans, which almost certainly will include tax hikes (just not income tax perhaps), we'll have to digest all of that and how it relates to the bond market, growth, inflation, and any potential political fallout. So, the mixture of all of that is what will drive volatility in sterling tomorrow surely.
The key thing for Reeves in all of this is surely to avoid waking up the bond vigilantes and stirring up another rout in the gilts market. She has to show that she is "fiscally responsible" and some good news at least is that it seems that she only has a £20 billion hole to plug in the finances rather than the feared £30-35 billion.
She might want to play things cool by going with tax hikes towards businesses, investments, and assets. But in turn, that will draw backlash from the financial circle and weigh on the UK economic outlook.
That said, it is at least better politically as the alternative is to put a "stealth income tax" i.e. freezing the tax thresholds and/or introduce spending cuts. Those measures might upset the political powers that may be and even threaten Starmer's leadership status as well.
So, there's going to be plenty of moving variables in this one.
