The pound has opened on the front foot against a broadly weaker dollar trading at a monthly high after gaining 0.4% in early trading. Against the euro it is trading largely unchanged from yesterdays close. The prospects of a December interest rate hike by the Bank of England had already created recent demand for sterling, but it has been further supported as many banks including Goldman Sachs, JP Morgan, and ING, believe the Central Bank could raise rates for the first time since the pandemic next month. The earlier than expected rate hike forecasts have been triggered by Governor Andrew Bailey’s hawkish comments at the weekend who said the Bank will have to “act now “ to slow runaway inflation. Tomorrow’s inflation data (CPI index) for September could have a significant impact on rate hike expectations.
The euro is trading close to a 3 week high against the dollar as market “risk on“ mood led to a decline in the greenback. European Central Bank governing member and head of the Bank of France Francois Villeroy, has said this morning that there is “no reason that the ECB should increase interest rates between now and the end of next year”, adding that although they remain vigilant on inflation their overall target should get back below 2% next year.
The dollar languished near the bottom of its recent range against major peers on Tuesday, hurt by decline in treasury yields and market “risk on” sentiment. Fears about contagion from property giant China Evergrande’s debt troubles receded after some of its peers made bond coupon payments this week, lessening demand for the “safe haven“ greenback. Later today, Federal Reserve Bank governing members Christopher J. Waller and Michelle Bowman will deliver speeches.
01.30 pm US Housing starts
02.00 pm EUR ECB Lane speech
18.15 pm US Fed’s Bowman speech
19.00 pm US Fed’s Waller speech