UK Government Does U-Turn On Tax Cuts – GBP Soars

It’s been a much quieter start to the week when compared with the price action we saw last Monday. Part of that is due to the fact that Chinese markets are off-line this week for the holiday there. We’ve seen GBP reversing the losses suffered at the start of last week, with GBPUSD now trading at pre-crash levels. USD is seeing a muted start to the week also with DXY still sitting off recent higher following last week’s correction lower. Today’s main focus will be the US ISM manufacturing reading, we also have UK and EU PMI readings along with a slew of Fed speakers. Quieter week ahead, data wise, with Friday’s US labour reports the headline event to watch for.

Key Factors for Today

- USD still sitting off highs following last week’s correction – muted action at the European open today
- Equities looking a little better on Monday tough downside risks remain following last week’s moves
- GBP reverses higher as UK government does U-turn on tax cuts
- Japanese Fin Min Suzuki warns BOJ watching price moves, ready to act
- Metals and commodities higher on USD weakness

Coming Up

- EUR Eurozone final manufacturing PMI

- GBP UK final manufacturing PMI

- USD US ISM manufacturing PMI

Better Start For Stocks

We’ve seen a more muted start for equities this week also with most indices simply treading water across the European open on Monday, very much feels like the calm after the storm. Listless action in USD is having a mildly supportive effect. However, risk sentiment remains very fragile and risks of a further drop lower remain high. The FTSE is seeing fresh selling today given the rebound in GBP.

Zealand Pharms Sees 40% Move

Traders will be keeping a close eye on shares in Zealand Pharma following a 40% spike higher on Friday. The move came on the back of news that the firm has successfully completed phase three of a promising new bowel disease drug. The data delivered from the
test puts Zealand on course to seek approval for a challenged drug to Takeda’s Gattex which is the market leaders.

GBP Reverses Losses As Government Does U-Turn on Tax Cuts

In FX, GBP is leading the way at the start of the week with GBP pairs having all reversed last week’s losses to trade back to pre-crash levels. The main driver here is the news that the UK PM will formally scrap the planned removal of the 45% tax bracket in the UK after initially stating the government’s intention to stick with the tax cuts announced during the mini- budget. With expectations of further, aggressive action from the BOE also, GBP is seeing strong buying here.

BOJ Intervention Speculation Back in Focus

The weakest performers so far today have been CHF and JPY. With risk markets seeing a muted but positive open and with the US Dollar still lacking any life, CHF and JPY have seen reduced safe-haven flows. However, traders are wary of the risks of a fresh wave of BOJ intervention. Japan Fin Min Suzuki commented this morning saying that the bank is watching FX action and is ready to take further action if JPY depreciation continues.

Metals & Oil Higher – Traders Waiting For OPEC+

In the metals and commodities space, we’re seeing a much more encouraging start for gold and silver with both metals trading higher today. The key for metals this week will be how USD trades ahead of the labour reports on Friday. Oil prices are looking more lively today also. Traders will be paying close attention to the OPEC+ meetings this week with expectations that the group will announce a further production cut, aimed at lifting flagging oil prices.