Pound Outperforms as Markets Stabilize After Fiscal Headlines – Action Forex

Sterling is outperforming in otherwise quiet trading, reversing some of the weakness seen late last week. The Pound and UK bonds were pressured after reports that Chancellor Rachel Reeves had opted to drop tax hikes from next week’s Autumn Budget, a shift that raises fresh questions about the UK’s fiscal shortfall. Today’s recovery in Sterling, however, along with retreat in gilt yields, suggests markets have taken a cooler view after the initial reaction.

Still, uncertainties remain. Markets will only get clarity once the budget is delivered next Wednesday, and questions over revenue, spending commitments, and the credibility of the fiscal framework continue to hang over UK assets. For the moment, traders appear to be adopting a wait-and-see stance rather than driving a sustained repricing.

The near-term focus shifts to inflation. This week’s UK CPI release is one of the most important data points for the Pound, particularly as investors reassess the likelihood of a BoE rate cut in December. If Wednesday’s report confirms that inflation peaked at 3.8% in September, the BoE could receive the final piece it needs to justify a move next month.

Elsewhere, the broader market mood is tilted mildly risk-off. Aussie and Kiwi are the weakest performers so far, while Euro is also under some pressure. By contrast, Sterling leads the pack, followed by t Dollar and Loonie. CAD resilience reflects the persistence of elevated core inflation readings, which should keep the BoC firmly on hold and anchor expectations around a prolonged pause. That steadiness has helped shield the Loonie from the softer risk backdrop. Yen and Swiss Franc sit in the middle of the pack.

In Europe, at the time of writing, FTSE is down -0.27%. DAX is down -0.86%. CAC is down -0.61%. UK 10-year yield is down -0.043 at 4.540. Germany 10-year yield is down -0.014 at 2.709. Earlier in Asia, Nikkei fell -0.10%. Hong Kong HSI fell -0.71%. China Shanghai SSE fell -0.46%. Singapore Strait Times fell -0.05%. Japan 10-year JGB yield rose 0.031 to 1.733.

CPI cools to 2.2% in Canada as gasoline declines deepen, core elevated

Canada’s inflation moderated in October, with headline CPI slowing to 2.2% yoy from 2.4%, fully in line with expectations. The deceleration was driven largely by gasoline prices, which fell -9.4% yoy compared with -4.1% yoy decline in September. Excluding gasoline, CPI was unchanged at 2.6% yoy.

Core metrics showed a mixed but generally softer profile. CPI median eased from 3.1% yoy to 2.9%—below expectations of 3.1%. CPI trimmed slowed to 3.0% yoy from 3.1%, matching forecasts. CPI common held unchanged at 2.7% yoy, undershooting the anticipated 2.8%.

The data point to a gradual cooling of inflation, driven by energy but supported by mild softening in core categories.

EU Autumn forecast: Eurozone growth upgraded, inflation easing ahead

The European Commission’s Autumn forecast showed a firmer growth profile for the Eurozone, with 2025 GDP now expected to rise 1.3%—a notable upgrade from April’s 0.9%. Growth is set to dip only marginally to 1.2% in 2026 before accelerating to 1.4% in 2027. The Commission said early-year momentum, boosted by exports brought forward in anticipation of tariff increases, demonstrated the EU economy’s capacity to absorb external shocks.

On prices, the Commission sees inflation steadily moderating, falling to 2.1% in 2025 and 1.9% in 2026 after averaging 2.4% last year. It highlighted that inflation is “nearing the ECB target” and that financing conditions have improved meaningfully, creating a more supportive backdrop for consumption and investment.

Overall, the forecast pointed to modest but stable growth as the dominant theme for the coming years. Despite a complex global environment, the Commission believes the Eurozone is positioned for a gradual reacceleration, with cooling inflation and easier financial conditions helping anchor the recovery.

BoJ’s Ueda warns against keeping policy too loose for too long

BoJ Governor Kazuo Ueda warned that maintaining ultra-loose monetary policy for an extended period could introduce risks to achieving inflation target in a stable manner. Minutes from his meeting with the Council on Economic and Fiscal Policy recorded Ueda stressing that stable achievement of the 2% goal required both pushing inflation up and preventing an unintended overshoot.

He noted that “keeping policy too loose for too long carries risks,” framing the central bank’s current approach as one aimed at ensuring a “smooth landing” while carefully assessing economic conditions.

The meeting also marked the first public appearance of Ueda alongside Prime Minister Sanae Takaichi since she took office.

Japan’s GDP avoids deeper Q3 slump as public spending cushions demand

Japan’s economy contracted in the third quarter, but the decline was smaller than markets anticipated. GDP fell -0.4% qoq versus expectations of -0.6%. The annualized figure showed -1.8% drop compared with forecasts of -2.5%. The softer-than-expected contraction reflected pockets of resilience in domestic demand despite broader weakness.

Government spending rose 0.5% qoq and private consumption edged up 0.1% qoq, helping to offset some of the slowdown. Public demand grew 0.5% qoq and contributed 0.1 percentage point to overall GDP. However, private demand was a significant drag, falling -0.4% qoq as residential investment plunged -9.4% qoq, subtracting 0.3 percentage point from output.

External demand also weakened. Exports of goods and services fell -1.2% qoq after a strong 2.3% qoq rise in the previous quarter, with net exports contributing to a 0.2 percentage point drop in GDP.

Slight uptick in NZ BNZ services in October, but weakness persists

New Zealand’s services sector remained under heavy strain in October, with the BusinessNZ Performance of Services Index inching up from 48.3 to 48.7 but still locked firmly in contraction.Activity, employment, and new orders all hovered below 50, extending the sector’s downturn to 20 straight months and keeping the headline reading well below the long-term average of 52.8.

Businesses cited weak demand as the principal drag, linking the slowdown to reduced household spending, ongoing cost-of-living pressures, and diminished confidence. While the proportion of negative comments fell from 58.0% to 54.1%, responses still pointed to a market struggling with inconsistent sales flows and hesitant customers. The continued decline in new orders signals that firms are not yet seeing a meaningful turn in forward demand.

Operating costs, competitive intensity, workflow delays, and cancelled projects are adding further strain, tightening cashflow and limiting the ability of firms to absorb volatility.

GBP/JPY Mid-Day Outlook

Daily Pivots: (S1) 202.57; (P) 203.33; (R1) 204.32; More…

Intraday bias in GBP/JPY is back on the upside with breach of 204.04 temporary top. Firm break of 204.22 resistance will suggest that larger rally from 184.53 is ready to resume through 205.30 towards 208.09 high. However, break of 202.31 minor support will turn bias to the downside towards 199.04, to extend the corrective pattern from 205.30 with another falling leg.

In the bigger picture, price actions from 208.09 (2024 high) are seen as a corrective pattern which might have completed at 184.35. Firm break of 208.09 high will resume the up trend from 123.94 (2020 low). Next target is 61.8% projection of 148.93 to 208.09 from 184.35 at 220.90. However, decisive break of 197.47 support will dampen this view and extend the corrective pattern with another fall.