The Daily Brief

Sterling ended yesterday's session with the market positioned for a Bank of England hike it treats as settled. Money markets fully price a rise to 4.00% at next week's meeting and a second increase by February, and with that much already in the price, the pound traded the dollar rather than the Bank, firming towards 1.34 as US yields fell. Against the euro the positioning is more striking still: the pound pushed through last Friday's 83.63p to around 83.57p, beyond what had already been its strongest level since May 2025, helped by an ECB that held rates amid reports that President Christine Lagarde intends to leave early.

The domestic figures released yesterday gave that positioning less support than the price implies. Mortgage approvals slipped to 53,400 in September, below the 54,000 expected, consumer credit grew by £1.9bn against £2.2bn forecast, and broad money barely moved. Those are the numbers of a household sector already slowing under higher energy bills and facing a Budget that leans on tax rises, which is why the ten-year gilt yield fell to a one-month low near 5.30% even with a rate rise fully priced. A hike delivered into weakening credit is one the market will expect to be short-lived, and that limits how much additional carry it can give the pound.

That makes the Bank's own language the variable to watch, starting with a speech from policymaker Mills at 09:00 GMT. If the coming rise is framed as a single insurance move against imported energy inflation, the second increase priced for February becomes vulnerable, and that is the part of the curve doing most of the work for sterling against the euro. If the tone points to a sequence, the euro cross has room to extend, because the gap between Bank Rate and the ECB's 2.50% deposit rate would keep widening at a time when the euro area is also dealing with French bond strain and a leadership question at its central bank.

At around 1.34, GBP/USD sits about 17 pips below the 1.3409 high of 20 October, at the top of an October range that bottomed at 1.3137 on 14 October, and it has got there on dollar weakness rather than on anything domestic. That tilts the balance of risk against the dollar modestly lower from here: a clean break above 1.3409 needs the Treasury rally to extend, while a rebound in US yields or a cautious Bank of England would send the pair back towards the 1.3273 midpoint. Against the euro, at around 83.57p and through last week's best level, the pound is priced for a hawkish Bank and a distracted ECB at the same time, which leaves more room to give back than to gain if either assumption slips.

4.93%. That is where the ten-year Treasury yield sits this morning, its lowest in seven weeks, on the morning after the US economy reported 3.4% annualised growth for the third quarter, the fastest in a year and ahead of the 3.2% expected. The move says more about where investors are sheltering than about the economy: Alphabet's 12.6% slide and after-hours misses from Amazon and Intel pushed money out of technology and into government bonds, and the dollar has followed yields down, with the Dollar Index at 101.76, off another 0.11% today and below the 102.15 it held before yesterday's data.

The inflation side of yesterday's releases did nothing to justify the rally. September PCE prices rose 0.5% on the month, the most since March, taking headline inflation to 3.6% and core to 3.1%, both exactly as forecast, while weekly jobless claims fell to 194,000. Yet futures-implied odds of a December rate rise have slipped to around 75% from roughly 85% after Wednesday's decision. Part of that is the safe-haven bid compressing yields mechanically, and part is Chair Kevin Warsh's argument that tighter financial conditions are already doing some of the Fed's work, an argument that a falling stock market only strengthens.

This afternoon's employment cost index at 12:30 GMT is the cleaner test of the hike case, because it measures the wage pressure that turns an energy shock into persistent inflation. Labour costs are expected to have risen 0.8% in the third quarter after 0.9% in the second; a print at or above the prior quarter would push hike pricing back towards where it stood on Wednesday, while a softer number would give the bond rally a macro reason to add to the sentiment one. A speech from Fed policymaker Musalem later in the day, and the approach of next week's midterm elections, add to the reasons the market may be reluctant to extend the dollar's slide into the weekend.

At 101.76, the index sits in the lower part of its recent range, about 0.16 above last week's low near 101.6 and more than a full point below the 18-month high near 102.9. With hike odds already cut by around ten points on a move driven by equities rather than inflation, further dollar downside depends on the tech sell-off deepening, while the upside needs only a firm wage print or a calmer equity open to restore some of the pricing it lost. At these levels the balance of risk has turned modestly back in the dollar's favour, particularly against currencies such as sterling that have rallied on its weakness rather than on their own news.

Yesterday's September producer price figures showed the fuel shock moving through South Africa's supply chain faster than the consensus had assumed: factory-gate inflation jumped to 6.2% from 5.0%, ahead of the 5.7% expected, with prices up 1.0% in the month alone. Released the same morning, private sector credit growth slowed sharply to 6.2% from 7.5%, against expectations of no change. Taken together, the two prints describe costs rising while borrowing demand cools, the combination that makes the Reserve Bank's next decision harder rather than easier.

The rand barely registered either number. It spent yesterday's session close to 16.62, steadier than a 6.2% producer print would normally allow, because a softer dollar and a lower oil price offset the loss of support from gold, which slid towards $4,000 an ounce. The ten-year government bond yield eased about 3 basis points to near 8.70%, following global yields lower rather than responding to local data. That is a currency being held in place by the dollar rather than supported by its own fundamentals, and it matters because the dollar's weakness this morning rests on a technology sell-off, not on anything that improves South Africa's position.

For the Reserve Bank, the producer figures strengthen the case for a further increase at the November meeting, where a move to 7.50% is already the prevailing forecast, and they reduce the chance that the fuel levy relief announced in the medium-term budget is enough to keep consumer inflation from moving above 5%. Slowing credit argues the other way, and that tension is more likely to show up in the vote split than in the decision itself. A hike framed as a defence against cost-push inflation protects real yields for bond investors but does little for the currency's growth story, which is why offshore demand has favoured bonds over outright rand exposure.

At around 16.62, the rand sits in the weaker half of its October range, roughly 0.08 from the 16.70 it touched on Tuesday and 0.24 from the 16.38 it reached after the medium-term budget, with R17.00 the level the market treats as the line for a broader sell-off. Today's September trade figures at 12:00 GMT, after an R20.5bn surplus in August, will show how much of the fuel bill export earnings are still covering. With the rand's recent stability borrowed from a weak dollar, and that weakness resting on equity sentiment that can turn within a session, the balance of risk still leans towards a retest of 16.70 rather than a return to 16.38.

The companies at the centre of the AI trade delivered the shock, and markets are spending this morning working out how far it travels. Alphabet fell 12.6% yesterday after search and advertising revenue missed, reviving the concern that AI could erode its core business rather than extend it. After the close, Amazon dropped 7% on a miss paired with a sharp rise in planned capital spending, and Intel sank 23% on a weak outlook. S&P 500 futures are around 7,640, down about 1% this morning, with Nasdaq futures falling further.

Asia has taken the first measure of it. The Nikkei is down around 2.5% and Taiwan's market sits at a two-month low, while the Bank of Japan's decision to hold at 1.25% on an 8-1 vote, with a clear signal that further rises are coming, lifted the yen and added to the pressure on Japanese exporters. The money leaving equities has gone to government bonds, with Treasury yields at seven-week lows and Japanese yields easing too. For importers and borrowers that is the useful part of the shock, since lower long-term yields soften financing costs, but it arrives alongside weaker risk appetite that can widen funding spreads at the same time.

Oil is running on a different clock. Brent is around $112, up about 1.3% this morning after falling on Thursday, when reports of US contact with Iranian officials and Europe's plan to release 42 million barrels of reserves over three months eased supply fears. The price is down about 4.5% on the week, but OPEC+ ministers meet on Sunday and the possibility of US military action after next week's midterm elections has not gone away, so the risk premium has been trimmed rather than repriced. Gold slipping below $4,000 an ounce despite the risk-off mood suggests investors are choosing bonds over metals as the haven of the moment.

At around 7,640, S&P 500 futures sit about 2.6% below the record of 7,845 set earlier this month and below where they started October, a modest pullback set against a gain of more than 11% this year, but one led by the stocks that carried that gain. A further 2.5% decline would take the index to around 7,450, a conventional 5% correction from the record, while a recovery needs evidence that heavy AI spending is still earning its return. With leadership this concentrated and bond yields already pricing a flight to safety, the near-term asymmetry leans towards further equity weakness, and the route into currencies runs through the dollar: a deeper sell-off keeps US yields and the dollar soft, while stabilisation hands both back their support.