GBP/USD Weekly Forecast: Pound Sterling struggles as low inflation propels BoE rate cut bets

The Pound Sterling (GBP) fell for the third consecutive week against the US Dollar (USD), as the GBP/USD pair tested levels below the 1.3000 round level for the first time since mid-August before staging a late recovery.

Markets turned more dovish on the Bank of England’s (BoE) monetary policy outlook while sealing in a smaller interest-rate cut by the US Federal Reserve (Fed), thus strengthening the US Dollar’s advance at the expense of the Pound Sterling. 

GBP/USD consolidates around mid-1.3000s, seems vulnerable amid bullish USD

The GBP/USD pair struggles to capitalize on modest recovery gains registered over the past two days and oscillates in a narrow range, around the 1.3050-1.3045 region during the Asian session on Monday. Spot prices remain well within striking distance of a one-month low touched last Thursday and seem vulnerable to prolong the recent retracement slide from the 1.3435 area, or the highest level since March 2022.

A surprise fall in the UK Consumer Price Index (CPI) to the lowest level since April 2021 and below the Bank of England's (BoE) 2% target lifted bets for a 25 basis point (bps) interest rate cut at the November 7 meeting. Furthermore, the money markets are pricing in the possibility of another BoE rate cut in December, which might continue to undermine the British Pound (GBP). This, along with the underlying bullish sentiment surrounding the US Dollar (USD) validates the negative outlook for the GBP/USD pair. 

Source: FXSTREET

Keppel has signed a conditional offtake term sheet with Woodside Energy, Australia’s largest oil and gas developer, for the supply and purchase of liquid hydrogen to power Keppel’s data centres in Singapore.

Keppel intends for the potential liquid hydrogen supply to form part of a larger, long-term utility-scale lower carbon power portfolio that Keppel is building to power its assets.

The term sheet follows the signing of a non-binding heads of agreement between the two parties in April 2023 to evaluate the potential supply of liquid hydrogen to Singapore.

Their deal tables commercial principles that may pave the way for an eventual binding offtake agreement for the supply of liquid hydrogen from as early as 2030, Keppel announced on Oct 21. 

The sources of liquid hydrogen would include Woodside’s proposed production facilities such as H2Perth, its facility in Perth, Western Australia.

Wong Wai Meng, chief executive of Keppel Data Centres, said the deal with Woodside has the “ability to provide a reliable and stable source of lower carbon energy to power our assets in Singapore”.

However, it remains conditional upon several factors, including the negotiation and execution of a fully termed sales and purchase agreement, as well as obtaining all necessary approvals.

The liquid hydrogen supply is expected to reduce emissions generated by Keppel Data Centres’ facilities. The supply will be used to cool data centres.

Source: Straitstimes

During the Budget 2025 speech, Prime Minister Datuk Seri Anwar Ibrahim announced the launching of Rakan KKM, a whole-of-government partnership programme to enhance Ministry of Health (MoH) hospitals and clinics for all Malaysians.

The launching of this programme reflects the prime minister’s deep commitment to ensuring that the rakyat will always have affordable access to the best healthcare available, no matter what their socioeconomic background.

In keeping with the spirit of Malaysia Madani, the higher intent of Rakan KKM is not only to raise the ceiling when it comes to the quality of public healthcare services, but also to raise the floor, so that every single patient in the public healthcare system benefits.

Under Rakan KKM, non-emergency patients will have the option to purchase “premium economy” value-added services, including personalised care, the ability to choose their specialists and additional privacy and comfort in the wards.

This partnership programme was designed with the goal of taking Malaysia’s public healthcare system to even greater heights. In achieving such heights, there are two challenges in particular that need to be innovatively addressed.

The first is the increasing number of medical specialists and other healthcare workers who are leaving public healthcare for the private sector.

The second is the availability of funds to improve and upgrade healthcare facilities and services, as well as pay our healthcare workers more.

Alongside these two challenges, the country is also experiencing high levels of inflation in the private healthcare sector. This may in turn lead to an increasing number of patients turning from the private sector to the public sector, adding a further strain on resources.

Rakan KKM is designed to robustly meet all of these challenges.

First, by providing public healthcare workers an avenue to earn more income by participating in Rakan KKM in their extra time, we increase the retention of key healthcare workers in the public healthcare system.

Second, by ensuring that a portion of its revenue is reinvested back into the public healthcare system, Rakan KKM contributes to the improvement of the public healthcare system as a whole. We can expect this to benefit the B40 especially.

Third, Rakan KKM addresses rising healthcare cost inflation by providing more value-based options for the rakyat, especially for those in the M40 segment.

In terms of pricing, Rakan KKM services are expected to be priced above cost, and below most existing private healthcare services. Rakan KKM is not designed to compete with existing luxury private healthcare services. There are also ongoing discussions with private health insurers to include Rakan KKM under their existing policies.

Rakan KKM differs from previous similar initiatives in public healthcare facilities in that first, it ensures that a greater cross section of healthcare workers can benefit directly and officially from this programme.

Second, the revenue from Rakan KKM will be reinvested directly into the hospitals in order to improve services for all, including non-Rakan KKM patients.

Rakan KKM is also designed with one key priority in mind: to never detract from the level and quality of healthcare that is currently available to the Malaysian public at its current cost.

In fact, because of the way revenue is reinvested back into the public healthcare system, Rakan KKM is designed to raise that standard of care for all to an even higher level.

In doing so, we are again aiming not only to raise the ceiling as far as the patient experience at public healthcare facilities is concerned, but also to raise the floor for every single patient.

We are able to achieve these goals via the practice of a few key operational principles.

First, Rakan KKM only applies to elective, non-emergency services. Prioritisation and access to emergency services will never be based on the ability to pay, but instead be based on clinical needs.

Second, healthcare workers are only allowed to participate in Rakan KKM services after serving their commitment to non-Rakan KKM patients.

Third, equipment and facilities used for Rakan KKM leverages untapped capacity.

These operational principles ensure that the level of service provided to regular patients in the public healthcare system will never be compromised.

Importantly, Rakan KKM is able to achieve these goals without any element of privatisation of our public healthcare services at all.

For there to be an element of privatisation, there must be private interests involved. In Rakan KKM, there are none. All investment for Rakan KKM comes from the government and from government-linked investment companies, thus keeping all the money, ownership and control under the government.

There are no private interests involved in investing, controlling or sharing revenue from Rakan KKM. Instead, all revenue is shared between the healthcare workers involved, and the public healthcare system as a whole.

Rakan KKM is intended to serve as a transformational agent to catalyse value-based healthcare throughout the ecosystem. With reinvigorated morale as well as modernised MoH hospitals and clinics, our healthcare teams will be able to provide even higher quality public healthcare for all.

Source: The edge markets

USD/CAD continues to gain ground as the Canadian Dollar (CAD) receives downward pressure ahead of the Bank of Canada (BoC) interest rate decision scheduled for Wednesday. The USD/CAD pair moves above 1.3800 during Monday’s Asian trading hours.

Decreasing price pressures, combined with a notable decline in labor growth and household spending, have fueled expectations that the Bank of Canada (BoC) will implement a significant interest rate cut of 50 basis points (bps) at its upcoming monetary policy meeting.

Additionally, lower Oil prices have put pressure on the commodity-linked Loonie Dollar as Canada is the largest Oil exporter to the United States (US). Last week, crude Oil prices depreciated by more than 7%, partly due to slowing economic growth in China and easing Middle-East tensions. West Texas Intermediate (WTI) Oil price trades around $69.00 per barrel at the time of writing.

US Dollar (USD) receives support due to fading odds of further aggressive rate cuts by the US Federal Reserve (Fed) in 2024. Last week’s data showed the US economy's resilience, which has strengthened the likelihood of a nominal rate cut by the Federal Reserve (Fed) in November.

According to the CME FedWatch Tool, the probability of a 25-basis-point rate cut in November has risen to 99.3%, up from 89.5% a week earlier.

The monthly US Retail Sales rose by 0.4% in September, surpassing the 0.1% increase recorded in August and the expected gain of 0.3%. Additionally, US Initial Jobless Claims fell by 19,000 during the week ending October 11, the largest decline in three months. The total number of claims dropped to 241,000, significantly below the anticipated 260,000.

Source: FXSTREET

Malaysia’s record spending plan is set to drive further foreign interest in its assets as the government continues to build on its fiscal reforms, even if the immediate impact on equities is muted. 

The government plans to cut the subsidy for the widely used RON95 petrol from mid-2025, Prime Minister Datuk Seri Anwar Ibrahim said in his budget presentation last Friday. The government is mulling a two-tier price system for the fuel, so that the wealthiest 15% pay the market rate for it, while the rest enjoy the current subsidised price, Economy Minister Rafizi Ramli said in a Bloomberg Television interview on Saturday.

The scope of the nation’s sales and service tax will also broaden to boost federal revenue, while wages will be hiked to help mitigate higher living costs. 

Rebuilding fiscal health is key for Malaysia to retain emerging Southeast Asia’s highest credit score and lift investor confidence in the country’s growth prospects, supporting its local assets. Malaysia’s ringgit, the top performer across emerging markets this year, was little changed in early trading in Kuala Lumpur on Monday. The nation’s benchmark stock index slipped 0.1%.

Here’s what analysts said about the budget:

Kenanga Research

There is only a “small pool of clearer-cut winners, such as the consumer sector”, with a positive on discretionary names, given clarity that the subsidy pinch will be confined to those in the loftier income brackets.

The government is sowing the seeds to continually pull in foreign direct investment through better incentives and higher-value tech businesses, which should keep foreign interest high in the local market. The country is also easing into long-term environmental, social and governance (ESG) goals, with the introduction of a carbon tax by 2026.

Maybank Securities Pte Ltd

Budget 2025 reaffirms the government’s commitment to fiscal consolidation, but may be insufficient to open up room for rating upside decisively. The revenue/gross domestic product and debt affordability metrics need improvements, and Malaysia’s public-debt ratio remains higher than majority of similarly rated peers.

Bond issuance in the final quarter of 2024 is likely to increase to fund a potential run-down in Treasury bill issuance. However, the supply profile is “slightly favourable” in 2025 with expectations of a RM19 billion decline in gross issuance and RM10 billion drop in net issuance. The US$1 billion maturity in April 2025 is likely to be refinanced in foreign currency.

TA Securities

The budget measures are set to drive the economy and attract investments, contributing to better corporate earnings.

We maintain our end-2024 FBM KLCI target of 1,690, which is based on a price-earnings ratio of 14.6 times versus the five-year average of 17.6.

Apex Securities

The budget is largely neutral as it seeks to alleviate concerns over the high cost of living, which is likely to lead to increased domestic spending in the future. The upward revision of economic growth projection may signal stronger corporate earnings growth. As a result, “the Malaysia stock market may sustain its recovery move” after rising about 13% this year.

For now, the market may react slightly negatively towards the introduction of a 2% tax on dividend income exceeding RM100,000 in 2025. Still, the construction, consumer, tourism-related, health-care, gloves, property and technology sectors are likely beneficiaries from the budget.

CIMB Securities

We expect the equity market’s reaction to Budget 2025 to be neutral to slightly negative.

The surprise introduction of a new tax on dividend income may reduce the appeal of dividend-yield stocks for individuals impacted by the tax.

The proposal to mandate employers to make Employees Provident Fund contributions for foreign workers could raise costs and pose earnings risks for companies. We maintain our KLCI target of 1,732 points. Among our 'overweight' sectors, construction and healthcare stand to benefit from the measures introduced in Budget 2025.

Oversea-Chinese Banking Corp (OCBC)

Bank Negara Malaysia (BNM) will remain watchful of inflationary pressures which are expected to rise on the back of the minimum wage increase and other fiscal measures.

While our baseline is for BNM to keep its policy rate unchanged at 3% in 2024 and 2025, we will continue to assess the risks around this baseline based on fiscal outcomes.

Source: The edge markets