In terms of the agreement reached between the White House and the US House of Representatives, which keeps the government open for a further six weeks, the main takeaways were that the bill excluded aid to Ukraine, but was also devoid of large spending cuts or increases to border security that hard-line Republicans had wanted. The White House will be hoping that House Speaker Kevin McCarthy will keep to his promise of considering a separate Ukraine aid bill to be voted on in the coming weeks, but the government is set to do it all again before the next deadline of November 17th.

In terms of data and surveys for this week, the attention is likely to centre around the US labour market releases beginning on Tuesday and culminating in the release of September non-farm payrolls on Friday. The US labour market is showing clearer signs of slowing, but that is yet to have any materially negative effect on the US dollar. 

Also this week, we have speeches from European Central Bank’s Chief Economist Philip Lane and President Christine Lagarde, as well as August Euroland producer price inflation data. Could Euroland figures indicate that the ECB (European Central Bank) is done in their tightening cycle, at least in terms of interest rates? Will either of the speeches address the build-up of asset purchases and what the ECB intends to do with them?

As for the UK, we’ve already seen one of the few notable releases of this week, with Nationwide house prices recording no change in prices between August and September, but still a 5.3% decline in house prices year-on-year. The regions of the South West, East Anglia and East Midlands performed worse than any others. London prices declined less than the UK average as did the outer metropolitan area, with the risks of a significant additional crunch on homeowners from refinancing costs having alleviated as the predicted interest rate peak has fallen sharply. In the remainder of the week, we have the final September services PMI (Purchasing Managers’ Index) and 1 year inflation expectations due, but none of this should give any direction on the pound against other major currencies.

I still think that the recent signs of a turn in some of the survey data could prove helpful for the likes of the GBP and EUR versus the US dollar in Q4, albeit the quarter has started inauspiciously for these currencies. The prospect of yet another rancorous set of negotiations between Democrats and Republicans over US spending heading into the end of the year, and the possibility of a turn in the US labour market, could put the FX markets in a less generous mood towards the USD, in my view. However, fresh highs in the USD index, the highest level it has reached since November 2022, point to the possibility that things could get worse before they get better for the GBP and EUR, in my view.

This week sees the Reserve Bank of Australia (Tuesday), Reserve Bank of New Zealand (Wednesday), the National Bank of Poland (Wednesday), central bank of Romania (Thursday), central bank of Peru (Friday) and Reserve Bank of India (Friday) all meeting. 

The risks are that we could see some interest rate cuts from the Polish and Peruvian central banks. However, I wouldn’t rule out some surprises from the comments that the RBA (Reserve Bank of Australia), RBNZ (Reserve Bank of New Zealand) or RBoI (Reserve Bank of India) make post the expected no-change decisions from all of them. 

The risks are steadily shifting as the economic landscape in many of these countries or surrounding regions worsens. With the likes of the People’s Bank of China still seemingly in the midst of a cutting cycle, it may be that others follow suit as the risks of deflation (or disinflation) are seen as intensifying, in my opinion.