We've had a chorus of hawkish rhetoric from Fed officials following the September hike, most notably Goolsbee warning the road back to 2% "won't be painless". The tone started to change Tuesday, when New York Fed President Williams said there is "no need for urgency".
Yesterday's PCE backed him up. Core came in at 0.247% on the month against the 0.3% the Street expected, with the annual rate at 3.0% versus a 3.3% forecast, though much of the softness owes to a methodology change in how portfolio management services are measured. Traders have pared back October bets as a result. Our base case remains an October hold and a December hike.
Non-farm payrolls land tomorrow at 13:30 UK time, with the Street expecting 90k added. The metric to watch is wage growth. Any acceleration would imply second-round effects from the oil shock are taking hold, and we would expect a further dollar rally as traders rebuild bets.
Sterling is in an interesting spot. A 25bp BoE hike in November is largely consensus. But the Budget on the 28th of October looms over the currency. Rising gilt yields are rapidly narrowing the Chancellor's headroom, and estimates from KPMG and Deutsche Bank now put it at roughly £12bn to £14bn, nearly half the £23.6bn projected in March. So, as BBVA put it, there is "limited scope for positive surprises from the budget", and our lean is for the Budget to weigh on the pound into the event.
That said, a Budget that protects the headroom, or any easing in the Middle East that takes the shine off the dollar, could see the pound bounce quickly, and the BoE's November hike sits in the background as support.
Reach out to the dealing desk if you need any help navigating what comes next.
Yesterday's PCE backed him up. Core came in at 0.247% on the month against the 0.3% the Street expected, with the annual rate at 3.0% versus a 3.3% forecast, though much of the softness owes to a methodology change in how portfolio management services are measured. Traders have pared back October bets as a result. Our base case remains an October hold and a December hike.
Non-farm payrolls land tomorrow at 13:30 UK time, with the Street expecting 90k added. The metric to watch is wage growth. Any acceleration would imply second-round effects from the oil shock are taking hold, and we would expect a further dollar rally as traders rebuild bets.
Sterling is in an interesting spot. A 25bp BoE hike in November is largely consensus. But the Budget on the 28th of October looms over the currency. Rising gilt yields are rapidly narrowing the Chancellor's headroom, and estimates from KPMG and Deutsche Bank now put it at roughly £12bn to £14bn, nearly half the £23.6bn projected in March. So, as BBVA put it, there is "limited scope for positive surprises from the budget", and our lean is for the Budget to weigh on the pound into the event.
That said, a Budget that protects the headroom, or any easing in the Middle East that takes the shine off the dollar, could see the pound bounce quickly, and the BoE's November hike sits in the background as support.
Reach out to the dealing desk if you need any help navigating what comes next.