UK FISCAL: Reeves: Extra drug costs from US-UK deal low first couple of years

• In FX, EURUSD has recovered from its recent lows. The move higher, for now, appears corrective. A short-term recovery is allowing a recent oversold condition to unwind. Resistance to watch is the 20-day EMA, at 1.1587. It has been pierced, a clear break of it would signal scope for an extension towards the 50-day EMA, at 1.1627. The trend remains bearish. A reversal would refocus attention on the bear trigger at 1.1469, the Nov 5 low.
• A bear trend in GBPUSD remains intact and the latest recovery appears corrective. The move higher is allowing an oversold trend condition to unwind. Firm short-term resistance to watch is at the 20-day EMA, at 1.3237. A break of this hurdle would signal scope for an extension towards the 50-day EMA, at 1.3340. A resumption of the downtrend would pave the way for an extension towards 1.2971. The bear trigger is 1.3010, the Nov 4 and 5 low.
• The trend structure in USDJPY is unchanged, it remains bullish and the latest shallow pullback appears corrective. Moving average studies are in a bull-mode position, highlighting a dominant uptrend. The bull trigger is 154.48, the Nov 4 high. A break of this level would confirm a resumption of the uptrend and open 154.80, the Feb 12 high. First important support to watch lies at 152.46, the 20-day EMA.

• Fed Funds implied rates are a modest 0.5-1.5bp higher for meetings out to mid-2026, helped by a marked improvement in odds of the government shutdown ending.
• Cumulative cuts from 3.87% effective: 16bp Dec, 25bp Jan, 35.5bp Mar, 41.5bp Apr, 55bp Jun.
• SOFR futures see larger moves, up to 4.5 ticks lower through 2027 contracts.
• It sees the terminal yield higher at 3.12% (H7) but still off Wednesday’s 3.16% marked the highest close since late July, following beats for ADP and ISM services before weaker alternate labor data and consumer sentiment over Thu-Fri.
• We don’t expect today’s Fedspeak to move the needle having heard from both recently.
  • 0830ET - SF Fed’s Daly (non-voter, leaning dove) on Bloomberg TV. She’s spoken a few times since the Oct 29 FOMC, including in a blog post this morning firming her dovish leaning stance.
  • 0945ET - St Louis Fed’s Musalem (’25 voter, hawk) on Bloomberg TV. He said on Nov 6 that policy is getting close to neutral and that the Fed needs to lean against above-target inflation. The labor market is around full employment but there are some downside risks to it. 

RXG6 128 puts paper paid 52 on 8K vs. RXZ5 128.00 puts at 6.5, rolling out the curve.