Dear Reader,

Today's overview of economic news and market action

• Concerns over the Middle East, a key focus for markets last week
• Risk averse mood evident for much of the week
• Equity markets under pressure, oil prices higher
• Currency-wise, the dollar benefitted from safe haven demand
• It was further boosted by Friday’s better than forecast payroll data
• EUR/USD opens this morning below $1.10
• GBP/USD is in the lower half of $1.31-1.32
• This week’s diary includes US CPI, Fed & ECB minutes, UK GDP

All rates quoted are indicative market rates.

Bank of England’s muddled messaging

Following relatively cautious guidance just two weeks ago, Bank of England (BoE) Governor Bailey’s press comments this week have weighed on sterling, and drove a softening in near-term UK rate expectations. In an interview with the Guardian, Bailey stated that the Bank could be “a bit more aggressive” in cutting interest rates provided the news on inflation continued to be good. 

Budget 2025 is set against exceptional budget surpluses. The starting point is a nearly €24bn surplus in 2024, including windfall proceeds from Apple Judgement of €14bn this year. The budget surplus is forecast to be €23.7bn in 2024 (7.5% of GNI*), and €9.7bn in 2025 (2.9% of GNI*). However, excluding windfall receipts, the Government will run significant deficits in the coming years

Irish manufacturers experienced another decline in new work during September, driven by the fastest fall in export sales for five months. Subdued customer demand led to a renewed decline in production volumes and cutbacks to staffing numbers.

Irish services activity increased at the strongest rate in six months in September as cost pressures eased, the latest AIB PMI® survey data showed. Growth of both new business and employment moderated, coming in slightly below their long-run trends, but outstanding work increased solidly and the 12-month outlook rebounded since August.