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Are interest rates on the up?

2nd November 2017 Market Update

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?? GBP – Sterling enjoyed another strong session yesterday, making firm strides versus the euro. Manufacturing PMI data in the morning proved better than anticipated and this helped bolster the pound for the rest of the day. The Government also admitted that a Brexit deal is likely to favour the EU and this went some way to alleviating market jitters.

The big news today will be the Bank of England policy meeting and the announcement of this month’s interest rate. There is high expectation that a rate rise will be forthcoming and, although this has been largely priced in to current trading levels, a confirmation will likely result in limited further upside for Sterling. However, there is a risk that the committee will leave rates as they are for a further month. This would not sit well with investors and could very much cause Sterling to lose a lot of ground quite quickly.

In addition, there will follow the customary statement and press conference with Mark Carney. His words and direction for future policy, together with any intimated changes to stimulus measures, will be keenly noted. We also have Construction PMI data due in the morning, which is expected to be largely unchanged.

?? EUR – There is very little to report from the eurozone yesterday, with a total lack of economic data leaving the currency drifting with the wind. The euro has lost some ground versus its major counterparts over the past few days, but this will be met with some approval by Mario Draghi and the ECB, who have considered the euro over-valued for a while. The currency remains broadly strong, however and could regain ground against the pound if UK interest rates are not increased today.

Once again, there is no data due out today for the eurozone.

?? USD – The dollar has been buoyant of late and held its momentum throughout yesterday. The US again posted some good numbers, with ADP Employment data signalling small gains in the early afternoon. A slightly disappointing Manufacturing PMI figure later in the day had little effect.

Last night saw no change to US interest rates, but the FOMC statement indicated a December hike is likely. It also emerged that Jerome Powell is Trump’s preferred choice for the Fed Chair, to succeed Janet Yellen.

Today sees the usual Thursday reading of Unemployment Claims, but this is unlikely to trouble the scorers.

 

Key Announcements

?? GBP
09:30am – UK Construction PMI
12:00pm – UK Interest Rate Decision
12:30pm – UK Gov Carney Speaks

 

Our View: All eyes will be on the Bank of England today. Simply put, an interest rate increase should cause a Sterling bounce, whilst no rise at all could well cause the pound to lose ground sharply. The smart money is on an increase, but it should be noted that there are those who believe that a deferment would not be a surprise.

 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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