GBP starts Q4 on the up

Good morning

October is upon us and with it the final quarter of 2026.   GBP starts the quarter on a pretty strong footing across the board.  It traded as high as 1.3310 against USD yesterday as US core PCE came in lower than expected although that bout of USD weakness was short-lived partly due to the decline in PCE coming from a change in methodology rather than any major turn in inflation.  Other US data yesterday was generally strong with ADP and Chicago PMI both well above expectations.  GBPUSD is now 1.3260, reflecting the strength of the US dollar.

It is against other currencies where GBP strength becomes clearer.  GBPEUR is at its highest level for pretty much two months at 1.1720, driven in part by a weak Euro which, at 1.1315 is currently trading at its lowest level for some 16 months against USD, but also perhaps by Burnham’s approach to a possible reset of relations with EU.  GBPAUD is up at 1.9090 after disappointing Aussie trade numbers overnight, GBPNZD 2.3610 and GBPCAD 1.8880, each at or around one month highs and in the case of NZD the highest level for eleven years.  GBP has also gained against JPY, that pair some 300 pips above yesterdays low although this is down more to Yen weakening on reducing October BoJ rate rise thinking than specific GBP strength.  Japan’s Nikkei advanced 3.3% overnight, pushed by the prospect of slower BoJ rate rises.

This GBP strength comes despite BoE so far raising interest rates.  Both ECB and Fed have raised rates and both could well do so again.  Overnight ECBs Schnabel said rates are not yet restrictive and ECB should not wait for second round effects, knocking some of Lagarde’s recent dovishness.  Fed is mixed as well, with Kashakri signalling another rate rise this year although the chances of an October rise is less likely following Williams dovish comments that I reported yesterday.

Oil prices are higher as US SecState Rubio ordered an Iranian delegation to leave the US immediately after negotiations stalled, underscoring the fragile relationship between the two countries and raising the prospect of more military action in the Middle East.  There is a chance though that Iran really has lost much of its military infrastructure and as such lost control of the Strait of Hormuz, recent increases in Middle Eastern oil supply could support that thinking. 

The Fairford incident remains a mystery with reports that one of the five men arrested had himself dialled 999 sometime before the local farmer raised the alarm.  It remains uncertain as to why the five men arrested were released on bail, I did wonder whether they had sort of diplomatic immunity which would perhaps tie in with thinking that Iran had something to do with the operation, something UK PM Burnham has intimated.  So many questions remain though including how many men were spotted by the farmer, it sounded like more than five.  Did one of the five really call 999?  Were these the men that Trump said had been watched for a while?  Are there more still at large?  Was this really a possible attack or were they really just looking to steal fuel?  So many other possibilities here as well, I’m hoping the truth comes out eventually.

Meanwhile I have been reading reports of the Flydubai flight that was so close to disaster yesterday, thwarted by the heroic actions and quick thinking of passengers on board.  I can’t think what the other passengers were thinking as the plane entered a steep dive and dropped thousands of feet in just a couple of minutes.  I just hope this was a one-off incident.

There was a pretty decent cricket ODI yesterday, West Indies made a total of 405/7 off their 50 overs, their biggest ever 50 over total which gave India quite a target to chase.  India however managed to reach that target with over six overs to spare.  West indies will be disappointed but the fans got to see over 800 runs in one day which is a pretty decent tally.  The two teams meet again on Saturday.

Todays calendar includes US ISM PMI but is really dominated by a huge number of central bank speakers.  These may well provide some volatility but I think focus will be more on the US nonfarm payrolls release tomorrow afternoon.

Have a great day…

-  09.00 BoEs Bailey speaks

-  09.20 ECBs Cipollone speaks

-  10.30 US challenger job cuts

-  11.35 ECBs Nagel, Villeroy speak

-  13.00 BoEs Mann speaks

-  13.30 Initial jobless claims

-  14.30 CAD S&P manufacturing PMI

-  14.30 ECBs Lagarde speaks

-  15.00 US ISM manufacturing PMI

-  15.00 Feds Waller speaks

-  15.00 ECBs Sleijpen speaks

-  16.30 ECBs Schnabel speaks

-  18.30 Feds Jefferson speaks

-  20.00 Feds Bowman speaks

-  20.30 Feds Cook, Williams speak

-  00.30 Japan Unemployment, Tokyo CPI