FX Daily: GBP and KRW were weakest on Tuesday
GBP depreciated 0.8% to 1.0968, below 1.10 for the first time since 28 September. Bank of England Governor Andrew Bailey ruled out extending emergency bond purchases beyond 14 October because it would contradict the need for monetary policy to control inflation. The pensions industry had called on the central bank to keep the programme open until Chancellor Kwasi Kwarteng unveils his debt-cutting plans on 31 October. To stabilize the gilt market, the BOE doubled daily gilt purchases to GBP10bn on Monday and pledged on Tuesday to buy up to GBP5bn of indexed linked per day. Although the new measures prevented the 10Y Gilt yield from rising above 28 September’s high of 4.59%, it did not prevent the 30Y yield from rising towards the 4.988% high on 27 September. The IMF criticized the mini-budget again, estimating it would keep UK inflation high by an average of 9% over the next two years. After downgrading UK’s debt outlook to negative from stable last week, Fitch sees a deeper UK recession of -1% in 2023 on its prediction for the BOE bank rate to rise from 2.25% to 4.25% by December and possibly 5% by mid-2023.
KRW depreciated 1.6% to 1436 per USD, near the year’s weakest level of 1442 on 3 October. A weaker global outlook brought the Nasdaq Composite Index 1.1% lower to 10426, its worst level since July 2020. This year, KOSPI has fallen 26.4% YTD alongside the 33.8% plunge in the Nasdaq. The IMF sees South Korea’s growth dropping to 2% in 2023 from 2.6% this year, weaker than the global growth slowdown to 2.7% from 3.2%. Last week, South Korea reported a current account deficit of USD3.05bn in August for the first time since April 2020. In the first nine months, falling export growth led to a record trade deficit of USD28.9bn, sharply reversing the USD29.3 surplus for 2021. Today, our economist sees the Bank of Korea hiking 50 bps to 3% and the governor providing new forward guidance for rates to peak at 3.5%. However, the BOK hike will pale against the fourth 75 bps Fed hike to 4% on 2 November.
Quote of the day
“You may delay, but time will not.”
Benjamin Franklin
12 October in history
US President Theodore Roosevelt officially renamed the Executive Mansion to the White House in 1901.
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