So what will it be Mr Bailey?

Jeremy Thomson-Cook
Jeremy Thomson-Cook 04 November 2021

GBP: Bank of England decision on a knife edge

EUR: Held up by others' weakness

USD: Another soft push back

 

Sterling

So here we are.

I can't remember a Bank of England meeting that was so eagerly anticipated since the ones in the immediate aftermath of the Brexit vote.

While market pricing is definitive in its view that the Bank of England will raise interest rates by 15bps this lunchtime, people in my profession are more split on the possibility.

Those looking for a hike cite the increase in inflation and the possible damage to the Bank's credibility should they hold off having talked up the chances of an increase in borrowing costs for weeks.

Those looking for no change are focused on the lack of clear data on how the jobs market has handled the end of furlough and the decreasing support from government spending as we head into the new year.

I wouldn't be surprised if they hike rates but have started to lean more to no change in policy in recent days, especially following the Federal Reserve meeting last night.

No hike in rates will see sterling lose ground across the board with us also thinking that any increase in rates today will come with a warning that the future path for the base rate remains highly uncertain, prompting a decline in the pound too with factors like how unanimous the decision is also playing a part.

There is no doubt that this meeting sets the pound up for the next 6 months. It is not one to be missed nor to be caught out by.

 

Euro

European interest rate expectations have come away from the highs seen last week with it becoming clear that the doves are regaining control of the narrative.

We expect the euro's main cross against the dollar to remain quiet ahead of tomorrow's US jobs report.

 

US dollar

The Federal Reserve successfully completed the launch of their tapering program last night without much volatility in markets. All things being well, the US central bank will end its purchases of bonds and mortgage-backed securities in June of next year setting up July as the month from which interest rates could move higher.

The Fed Chair was careful to the point of painfulness to emphasise that rates are not going higher yet.

The eyes of Mr Market now switch to the data which will arguably become even more important than previously as we set off on a calendar countdown towards a further change in policy in the world's largest economy.

A strong jobs number tomorrow is just another catalyst for a surge in the USD.

 

Elsewhere

After the RBA left the market on read over its rate expectations for the Australian economy the AUD slumped by as much as 1.4% yesterday. News out of China in the coming days over the spread of Covid-19 will likely keep AUD pinned for a little while longer.

 

Market rates

Today's Interbank Rates at 08:27am against sterling movement vs yesterday.

Euro €1.180 ↑
US dollar $1.363 ↑
Australian dollar $1.835 ↑
South African rand R20.80 ↓
Japanese yen ¥155.6 ↑

 

Have a great day.