Good morning
A very warm welcome to 2025, indeed this morning is a touch warmer than many we’ve had since the turn of the year, the first one in a while where the garden hasn’t been completely white with snow or frost.
I know I’m a little late to get back into the swing of things this year. I thought I’d treat myself and ease into 2025 gently. Probably not the right time as it turns out, the first full working week of the year saw some pretty hefty moves. Most notably we have a stronger US dollar, given an additional boost on Friday by a stronger than expected US nonfarm payroll release which has in turn led to revised forecasts of FOMC rate moves.
The push higher in the US dollar comes at the same time as board weakness in GBP, a reflection of the alarming high cost of borrowing faced by Starmer and his gang after the budget last year, indeed we have seen the highest cost of borrowing since before the global financial crisis of 2008. UK gilt prices have collapsed, UK growth expectations have fallen and it would appear that more BoE officials are considering rate cuts. Meanwhile Chanellor Reeves has made it clear that her fiscal rules set out in the budget are non-negotiable. Its looking bleak for GBP.
Before the budget last October GBPUSD was trading around 1.3400. By the end of October it was 1.2850. Through November we hit a low around 1.2500 but December saw a rally back up to 1.2800. By the end of the year we in the mid-1.25s and as I type GBPUSD is 1.2145. It is fair to say that some of this move has been triggered by the stronger US dollar.
Over the same time period EURUSD has dropped from over 1.10 to around 1.02. But it is GBP that has suffered more, if we look at GBP against EUR we see current levels around 1.1880, the lowest for two months but perhaps more importantly nearly 200 points below levels seen just in the middle of last week.
Whether this turns into a Truss/Kwarteng type collapse in GBP remains to be seen. I don’t like to be a scare-mongerer, but I am very concerned about this move, I can’t really see where it will end and we are near enough key downside levels in GBPUSD and GBPEUR that, if broken, could see renewed selling and sharp declines. Anyone thinking this can’t happen need only look to Sept 2022.
So, what else has been happening? Obviously the LA fires are in the headlines. I’ve been there a couple of times and know some of the areas that have been devastated, the scale of it is quite difficult to comprehend. There are a lot of suggestions the fires were started deliberately, and there is unhappiness over California’s water management which may have adversely affected firefighting. Strong winds are helping to fan the flames and spread the fires. It’s not looking good.
I had been looking forward to watching the launch of Jeff Bezos’ Blue Origin this morning, a reusable space rocket to rival Musks SpaceX. However the launch has been postponed over some technical issues, so far we have had no confirmation of a new date.
In sport, the FA cup is in full swing, Spurs only scraped an injury time win against National League’s Tamworth in a very poor display, more disappointing as it came on the back of a brilliant performance against Liverpool in the first semi-final leg of the League Cup. Not sure I’ve ever seen a side so capable of being so good or so bad. Spurs next match is against Arsenal in the league. With one point from their last four league matches, we wait to see which Spurs team will turn up. Tomorrow’s match between Liverpool and Notts Forest will be interesting, Forest have won their last five league matches and are flying high in joint second place. Another win would stop Liverpool extending their lead at the top of the table.
That’s about all for now. Not much in the way of economic data today. UK and US CPI inflation numbers Wednesday, and US and UK retail sales Thursday and Friday respectively are certainly the main events this week but focus is more likely to be on how low GBP can move and how quickly it can get there. Buy your GBP puts here…..
- 19.00 US monthly budget statement
- 23.50 Japan current account
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