The end of October and the beginning of November promises to be very interesting when it comes to market events, because there will be plenty of the most important publications. What's more, these publications will appear one after the other, grading the emotions that may then appear on the market and affect the exchange rates of individual currencies, but especially USD.
The starting week will bring two main events, which usually are crucial for the financial markets. We are talking about the Fed's decision on interest rates and data from the US labor market, including changes in NFP — non-farm payrolls. Historically, these macroeconomic events are the most important for the US dollar. This week one publication will follow right after the other.
The Federal Open Market Committee (FOMC) will decide on interest rates on Wednesday, October 30 at 19:00 (data from the US will be published an hour earlier due to the fact that in the United States the time from summer to winter changes later than in Europe). On Friday, November 1 at 13:30 the data from the US labor market will be published.
The Fed may probably cut the federal funds rate for the third time in a row, thus breaking the statement that the previous cuts were supposed to be only a correction in the cycle. Now they seem much more serious. A slowdown in domestic demand, weaker wage pressure and falling inflation expectations suggest that further action may be needed in the coming months. According to the interest rate market there are 93 percent chances to cut rates in the US on Wednesday. The picture of the slowing US economy may also be noticeable in labor market data, where it is estimated that NFP will show approx. 90,000 new payrolls. This would be the lowest reading since June 2019.
For the euro area, GDP data from Q3 and inflation data in October will be very important. GDP in the third quarter was to increase by 0.1 percent q/q and 1.2 percent y/y. If, in fact, the euro area economy grew by only 0.1 percent q/q, this would be the worst result since 2014. Meanwhile, inflation in the euro area in October could have fallen to the lowest level since 2016, i.e. to 0.7 percent from 0.8 percent a month earlier. Data on GDP and inflation will be published on Thursday, October 31 at 11:00 am.
In the United Kingdom, the situation is constantly changing. At present, Prime Minister Boris Johnson wants to vote on Monday, October 28 for early elections to be held on December 12. It seems unlikely that this idea will be accepted by parliament because a two-thirds majority is needed and Johnson's government does not even have a simple majority. This complicates the situation and can affect the volatility of currency pairs with the British pound.
The week promises to be very exciting. It is worth paying attention to the currency pairs: EUR/USD, GBP/USD or USD/JPY, because in addition to the Fed the Bank of Japan will also make decisions about monetary policy.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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