Will We See a Shift in the Economic Landscape Arising?.

USD: Fed’s Caution as FOMC Meeting Looms

The US dollar’s recent surge appears to be slowing down ahead of the October 31-November 1 FOMC meeting. Market sentiment strongly favors the Federal Reserve maintaining interest rates at their current level, with a 98% probability. This is partly due to a decreased urgency for tightening in financial conditions, a viewpoint reiterated by several Fed officials, including Chairman Powell. The Dollar Index (DXY) might face a challenging week with potential data events that could either weaken or strengthen it. Positive Q3 GDP and persistent US PCE Data (a key inflation indicator for the Fed) could lead to a week of two halves, starting weak and ending strong.

EUR: Germany’s Economic Woes Persist

The German Bundesbank’s monthly report paints a gloomy picture for Europe’s largest economy, forecasting another quarterly contraction. Weak industrial production and declining consumption continue to hamper growth. Upcoming flash German and EU PMI data for October is expected to reveal limited progress and remain at suppressed levels. Germany’s manufacturing PMI, which usually shows robust results, has been a drag on the rest of Europe. If a contraction is confirmed, it would mark a fourth consecutive quarter of non-positive growth, with Germany already experiencing a technical recession in Q4 2022 and Q1 2023, followed by stagnant growth in Q2.

GBP: UK Borrowing Costs Surge to 25-Year High

UK borrowing costs have reached a 25-year high, driven by concerns about rising oil prices and stubborn inflation, which could compel the Bank of England (BoE) to maintain higher interest rates for an extended period. The 30-year UK gilt yield has surged to 5.209%, a level not seen since the summer of 1998. This increase in yields is a response to the perception that inflation is proving more persistent than initially expected. Investors now anticipate that global interest rates will stay elevated for a longer duration than previously hoped. While interest rates may not rise significantly further, central banks are expected to keep them higher to combat inflation before considering any rate cuts.

Economic Calendar