IFX Market Report: Wednesday 1st November 2023

The Bank of England is likely to maintain its current interest rates, which are at their highest levels since before the financial crisis, this week. This indicates that the battle against persistent inflation is ongoing, even though there are signs of weakening economic growth. According to financial market pricing, the bank's Monetary Policy Committee is expected to keep the benchmark rate at 5.25 percent. Approximately 80% of economists surveyed by Reuters believe that interest rates will remain unchanged on Thursday, while the remaining 20% anticipate an increase. The Bank of England is carefully considering signs of a cooling economy while also observing continued rapid increases in both consumer prices and wages.

In October, UK house prices unexpectedly increased by 0.9% on a monthly basis, mainly due to a limited supply of properties for potential buyers. Nationwide's index reported this data. Robert Gardner, Nationwide's chief economist, pointed out that despite the monthly increase in October, the housing market remains quite weak. In September, only 43,300 mortgages were approved for house purchases, which is approximately 30% below the monthly average seen in 2019. Additionally, data from the Bank of England on Monday revealed that British lenders approved the fewest home loans since January in September, further indicating a sluggish property market.

The eurozone’s economy is on the verge of a winter recession after official figures showed a 0.1% contraction in the third quarter of 2023. This performance was worse than expected, and it marks the third contraction in the past four quarters, leaving the economy only 0.1% higher than a year earlier. Despite a significant decrease in the eurozone’s annual inflation rate from 4.3% in September to 2.9% in October, business surveys suggest continued weakness in the coming months. A recession is typically defined as two consecutive quarters of declining economic activity measured by gross domestic product.

On Monday, the value of the pound remained relatively stable against the US dollar and the euro. Traders are looking ahead to the Bank of England (BoE) meeting on Thursday, where interest rates are expected to remain unchanged. The focus will likely shift to the economic outlook following a series of weak economic data releases in the UK. In recent weeks, the pound has faced pressure in currency markets due to fading risk appetite, influenced by stock market jitters and conflicts in the Middle East.

The US economy exceeded expectations by growing at a faster rate in the third quarter of the year. This growth was driven by a tight job market and strong consumer spending. The economy expanded at an annual rate of 4.9% during the July to September period, according to the government’s initial estimate. This marks the most significant increase since the final quarter of 2021. Despite the Federal Reserve’s efforts to curb spending with higher interest rates, consumers continued to spend. Analysts had anticipated a 4.5% growth rate for the third quarter of this year.. However, consumer confidence in the United States declined for the third consecutive month in October. This was due to gloomier economic forecasts and rising prices, which dampened optimism. Data released on Tuesday indicated that The Conference Board’s index fell from 104.3 in September to 102.6 last month, reaching a five-month low..

GBPUSD has remained range bound between 1.21 & 1.22 whilst GBPEUR is currently trading at 1.15. EURUSD is around 1.0550

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