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Daily Brief

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Budget day comes early

Central banks disappoint

If there is any surprise about what happened on Friday in the FX market is that, mostly, it didn't. The Australian and NZ dollars strengthened together by about 0.9% and the rand was up by 0.3%. As for the other seven most actively-traded currencies, they moved by no more than +/-0.1% against sterling.

Thursday had been slightly more active but even then difference between first-placed US dollar and last-placed Loonie was 0.7%. The shake-out in equity markets continued to attract media attention but its main impact on currencies was to reinforce the idea that as US share prices go down the yen goes up.

The European Central Bank president's press conference had been billed as Thursday's highlight and it did  indeed account for the biggest intra-day moves. The euro strengthened ahead of the meeting and fell afterwards.  Investors decided that the ECB sounded altogether too nervous about Italy.  Norges Bank also managed to send the krone lower when it kept its benchmark rate steady at 0.75% and all but promised a hike early next year: investors had evidently hoped for more.

Politics abroad 

At the weekend Brazil elected a new president and the German state of Hessen gave chancellor Angela Merkel's CDU party another kicking. Both results were in line with expectations. The euro was unworried by the German regional election; the Brazilian real moved higher into the weekend  but showed no reaction this morning.

For months now, investors have been growing accustomed to the idea that Angela Merkel is on the last lap of her chancellorship. With the erosion of her centre-right power base and a rise in support for the populist right, her coalition is on sticky ground and is unlikely to win re-election. 

The populist right was the clear winner in Brazil when the  people chose Jair Bolsonaro as president. As in the United States, Italy and France, the new president got the job not because of any huge groundswell of support but because he represented "none of the above". Investors expect him to be positive for the Brazilian economy so the real has been on the ascendant since he reached the run-off stage of the election. 

Politics at home

Chancellor Philip Hammond will make his Budget speech this afternoon. The media are awash with ideas about what he may come out with to "end austerity" fund the NHS and mend the potholes. However, the uncertainty of Brexit will make it difficult for him to deliver any truly groundbreaking measures.

On Sunday Mr Hammond told a TV interviewer that a no-deal Brexit would require a new budget to replace the one he will unveil today. With that in mind, investors will treat whatever comes out this afternoon as provisional. It is hard to imagine them taking the pound higher on the back of it.

Ahead of the chancellor's speech there are a couple of UK ecostats for investors to consider. The Bank of England will release its money supply and mortgage figures and the CBI will report on retail sales for October.

AUD lead on Friday

AUD lead on Friday

NZD lead on Friday

NZD lead on Friday

EUR held back by tentative ECB

EUR held back by tentative ECB

NOK unmoved by Norges Bank rate hint

NOK unmoved by Norges Bank rate hint

BRL omens good under new president

BRL omens good under new president

GBP faces interim Budget today

GBP faces interim Budget today

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