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On October 14th, Bank of England Monetary Policy Committee member Stephen Taylor said on Tuesday that the likelihood of a UK recession, though small, is increasing, partly due to high borrowing costs. Taylor noted that the Bank of Englands reluctance to cut interest rates quickly means a "soft landing" for the UK economy is now unlikely. Instead, a "bumpy landing" is more likely: inflation will fall below 2% by the end of 2026, and the economy will remain "weak" for an extended period. However, Taylor warned that the risk of a "hard landing" is increasing. "The UK economy is already hovering around zero growth, and if the data turns negative, the future trend could deteriorate rapidly. The probability of such an outcome is now non-negligible." In recent months, Taylor has repeatedly voted for faster rate cuts than the majority of the Monetary Policy Committee. His latest comments suggest he may vote for a rate cut again at the November meeting.On October 14th, British Chancellor of the Exchequer Reeves set the tone for next months difficult budget, stating at a cabinet meeting that high borrowing costs and debt levels mean less money will be available for public services. A government spokesperson said on Tuesday that Reeves attributed the current challenges to "growth and productivity data consistently falling short of official forecasts over the past 15 years." In last years budget, the UK government raised taxes, primarily on businesses, totaling approximately £40 billion. Although Reeves promised at the time that no further tax increases would be introduced in the short term, economists expect her to seek another tax increase in her new budget on November 26th. People familiar with the matter said Reeves plans to include a larger fiscal buffer in next months budget than last years £9.9 billion to reduce borrowing costs and strengthen the resilience of public finances to market volatility.U.S. Ambassador to NATO Whitaker: All allies, including Spain, must fulfill their defense commitments.US Ambassador to NATO Whitaker: No cuts in NATO defense spending are allowed.BlackRock CEO: The United States needs to accelerate regulatory clarity and increase investment in digital asset innovation.

As a result of dismal Australian Employment data, the AUD/USD exchange rate falls further to about 0.69

Alina Haynes

Jan 19, 2023 15:14

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The AUD/USD pair has continued its slide to near 0.6900 after the Australian Bureau of Statistics published weaker-than-anticipated Employment (Dec) data. Contrary to market expectations, the Australian labor market has laid off 14,600 workers. The market had anticipated an increase of 22,500 employment. In addition, the Unemployment Rate has risen to 3.5%, exceeding both expectations and the prior estimate of 3.4%.

 

The growing unemployment rate will provide some relief to the Reserve Bank of Australia, although being destructive to the Australian economy (RBA). In an effort to address chronic inflation, Governor Philip Lowe of the Reserve Bank of Australia (RBA) has raised the Official Cash Rate (OCR) to 3.10 percent, which looks to have begun negatively impacting the labor market.

 

The Australian Property Investor (API) reported on Wednesday, "Despite the pain felt by homeowners attempting to meet mortgage repayments, recent buyers staring into the abyss of negative equity, and property prices falling at the fastest rate on record, it seems unlikely that rate hikes will abate soon." They noted that the increase in interest rates was the result of the 11.4% growth in household spending in November.

 

Worsening employment figures and a decrease in perceived risk appetite have damaged the Australian Dollar. As S&P500 futures have resumed their drop, investors' appetite for risk has diminished further following Wednesday's disastrous performance. The yields on U.S. Treasuries are supported by the concept of risk aversion gaining ground. The yield on 10-year US Treasury bonds has surpassed 3.38 percent once again.


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