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BoE Vote Count to Decide the Fate of the GBP

By:
Bob Mason
Published: Nov 2, 2017, 06:13 UTC

Earlier in the Day: Following the bounce in the Kiwi Dollar on Wednesday, there was some respite for the Aussie Dollar this morning, as the markets

Bank of England

Earlier in the Day:

Following the bounce in the Kiwi Dollar on Wednesday, there was some respite for the Aussie Dollar this morning, as the markets responded to the larger than expected widening in Australia’s trade surplus in September from a downwardly revised A$873bn to $1.745bn off the back of flat imports and a 3% increase in exports.

The Aussie Dollar moved from $0.76805 to $0.76952 upon release of the numbers, which coincided with building approval figures, also Aussie Dollar positive, with approvals up by 1.5% compared to a forecasted 0.9% decline.

Considering the RBA’s concerns over appreciation in the AUD, the latest trade numbers will ease some worry over the effects of the stronger Aussie Dollar on the economy, with strong global demand supporting trade terms through the month of September, offsetting the effects of a stronger Aussie Dollar through the month.

The numbers are unlikely to shift sentiment towards monetary policy for now, with inflationary pressures remaining subdued, but there may be some new found optimism in the economy, particularly if retail sales also impress tomorrow.

At the time of writing, the Aussie Dollar was up 0.47% at $0.7712, with U.S Dollar weakness adding fuel to the Aussie Dollar rally through the Asian session.

Elsewhere, the Yen was up 0.23% at ¥113.92, with the Dollar on the back foot on concerns over progress on tax reforms and the likely selection of Jerome Powell as the next FED Chair.

The Day Ahead:

Following a quiet day on the stats front on Wednesday, economic data out of the Eurozone is on the heavier side this morning and includes finalised October manufacturing sector PMI numbers together with employment figures out of Germany and Spain. We will expect the numbers out of Germany to be key through the session and are forecasted to be EUR positive.

Good news for the EUR is the lack of noise from the Catalan government on independence, as Catalan leaders flee the country following the court’s issuance of summons for the Catalan President and other leading members of the Catalan government.

At the time of writing, the EUR was up 0.34% to $1.1659 with direction through the day not only hinged on today’s stats but the direction of the Dollar through the U.S session.

Across the Channel, things will be heating up for the Pound ahead of this afternoon’s interest rate decision, with the markets having priced in a more than 80% probability of a rate hike. While there remains a distant possibility of the BoE holding, which would certainly sink the Pound, the continued build-up in inflationary pressure suggests that a move is not only likely, but needed. The only question that remains is whether the rate hike will be a dovish or a hawkish one. If Carney and the team are looking to ease inflationary pressures, we would expect the need for the rate hike door to be left open and while we would expect some link between future rate hikes and inflation in the minutes and Carney’s speech, the proof will likely be in the vote count.

The vote count is forecasted to go 6:3 in favour of a hike and for the markets to buy into the possibility of more hikes on the horizon, it’s going to have to be at least six votes in favour, a 5:4 vote too close a call to suggest members would be willing to push for more in the months ahead. One vote of interest will be whether newly appointed deputy governor Ramsden votes in favour of a hike, having just weeks ago stated to Parliament that he would not.

Stats out of the UK are limited to October’s construction PMI, which is unlikely to have a material bearing on the Pound, barring a return to expansion, with the markets expected to be fixated on the BoE through the day.

At the time of writing, the Pound was up 0.31% at $1.3286 in what’s likely to be a choppy day, with $1.34 levels attainable should the BoE take a hawkish outlook on rates.

Across the Pond, following the FED’s monetary policy decision and release of the FOMC statement, focus will now be largely on Trump’s decision on who will be the next FED Chair, with progress on tax reforms also of material influence.

White House leaks have pointed to Jerome Powell as the next FED Chair, which will have contributed to the Dollar softness through today’s Asian session, while the delay in the roll out of tax reforms on Wednesday was also a factor. Uncertainty over what reforms will be agreed upon will continue to weigh on the Dollar until the details of the Bill are released and for the Dollar to rebound, the Bill well need to lack any reference to a phasing in of reforms.

We would expect the Powell decision to have been largely priced in, leaving the Dollar more exposed to the tax reforms and stats out of the U.S this afternoon, which includes 3rd quarter nonfarm productivity and unit labour cost numbers, together with the weekly jobless claims figures.

Following the FED’s monetary policy decision, FOMC members Powell and Dudley are also scheduled to speak and perhaps Powell’s speech will become an acceptance speech…

At the time of writing, the Dollar Spot Index was down 0.30% at 94.532, with the Dollar managing to recover from an Asian session low 94.411 ahead of today’s main events.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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