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Pound resurgent and musical chairs at the Fed

Pound resurgent and musical chairs at the Fed

GBP
After two consecutive advances, Cable met some significant resistance today, although the sentiment around Sterling appears quite firm on the back of solid expectations of a 0.25% rise in interest rates by the Bank of England (BoE) at its meeting on Thursday.

Sterling gained more than two cents on the Dollar since Friday’s lows near 1.3070 and went on to hit fresh two-week highs at 1.3293 in the early morning trading session after Sterling was boosted by the comments delivered by the UK’s Brexit Secretary David Davis and increased hopes of a BoE rate hike tomorrow. Although a more sustainable upside seems to hinge on the shoulders of the BoE, and particularly on the likeliness of a hawkish message at Thursday’s meeting, Sterling’s rally faces strong resistance around 1.3300.

Sterling jumped to a one-month high against the Euro and was trading at levels around 1.1400. The European Union’s chief Brexit negotiator, Michel Barnier, said he was ready to speed up discussions with Britain and David Davis said he wants to strategically accelerate the process of Brexit

The focus for Sterling is now shifting towards the UK manufacturing PMI data and FOMC decision for fresh direction.

USD

The Dollar was unmoved in the late afternoon yesterday after employment wages came out in-line with expectations. However, financial markets remain sceptical over the Federal Reserve’s (Fed) predictions for the path of monetary policy. Uncertainty over who will lead the Fed, low inflation, and some concerns about a potential government shutdown in December can explain this uncertainty.

The Federal Open Market Committee (FOMC) started its two-day meeting yesterday and will unveil any decision on monetary policy this evening, with the Central Bank largely expected to maintain the status quo, at least until December, when the Fed is expected to provide a third rate hike for the year.

President Trump could have a major impact on the Fed’s course in coming years as he is nominating a new Fed Chair, Vice Chair, and most of the Board of Governors. As a result, it is wondered how much attention the market will pay to Mrs. Yellen, as this is likely to be one of the last times she presides over a meeting. December could be her final meeting as, in February, whoever Trump chooses will take over the Fed.

Today, we see the critical ISM manufacturing ahead of the FOMC interest rate decision. The slightly more distant focus for the Dollar is Friday’s non-farm payroll and employment numbers.

EUR

In the Eurozone yesterday, the single currency weakened against the Pound across the day as levels seen back in July were reached, pushing past 1.1400. Against the Dollar, fluctuations were seen between the 1.1630 and 1.1655 levels.

In terms of data, headline inflation came out 0.1% weaker than expected at 1.4% y/y for October, down from 1.5% y/y. Core inflation showed an even steeper decline to 0.9% y/y in October which would justify the dovish stance Draghi showed last week as disinflationary factors prevail.

That said, it’s not all doom and gloom for the Euro as third quarter GDP rose 0.6% q/q and 2.5% y/y, beating market expectations. Further, Eurozone unemployment fell to the lowest rate since January 2009 at 8.9%. This, therefore, suggests that a recovery of the single currency is gaining momentum.

Data To Watch:

09:30 GBP Markit Manufacturing PMI (Oct)
10:00 GBP MPC Member Cunliffe Speech
12:15 USD ADP Employment Change (Oct)
13:45 USD Markit Manufacturing PMI (Oct)
14:00 USD ISM Prices Paid (Oct)
14:00 USD ISM Manufacturing PMI (Oct)
14:00 USD Construction Spending (MoM) (Sep)
14:30 USD EIA Crude Oil Stocks change (Oct 27)
18:00 USD Fed’s Monetary Policy Statement Report
18:00 USD Fed Interest Rate Decision

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