GBP

Sterling opens 0.3% higher against the EUR and a modest 0.1% higher against the USD. Despite these gains, the pound remains tightly traded as the market looks towards the Bank of England Policy meeting at 12:00pm today. The bank will announce whether to raise borrowing costs from an all time low at 0.1% or say it is waiting to ensure the post-lockdown economy is ready for a rate hike. The committee could opt to increase the base rate to 0.25% to ease rising inflation, this being priced at a 55% chance by market watchers CME Group. A larger rate hike could provide a boost to the pound, however a no-hike could see the pound move lower. The market will then eye Governor Bailey’s speech to gauge the sentiment for future tapering/hikes later this year or in 2022. On the Brexit front, tensions persist as European Commission Vice President Frans Timmermans said it was “extremely well-known in London” that the demand to ditch the European Court of Justice (ECJ) could not be met.

USD

On Wednesday, the Fed announced a $15 billion monthly cut to its $120 billion in monthly asset purchases. This was followed by chair Jerome Powell’s speech, in which he said the U.S. central bank would be “patient” in deciding when to raise its benchmark overnight interest rate from near zero levels. This initially saw the USD weaken by 0.2% against its major peers but this dip appeared to be profit taking, as such it was only short lived and the dollar has found strength again this morning. Meanwhile, the data from the US showed that employment in the private sector rose more than expected in October and the economic activity in the service sector expanded at its strongest pace on record with the ISM Services PMI jumping to 66.7 from 61.9 in September. The dollar will now look towards today’s release of Goods and Services Trade Balance for September and Initial Jobless Claims for October.

EUR

Despite hitting week-long highs against the dollar following the Fed’s announcement last night, the EUR has opened down 0.3% today compared to yesterday’s open. Speaking on Wednesday, European Central Bank President Christine Lagarde reiterated her stance from last Thursdays ECB meeting, stating that interest rates are unlikely to increase as the “outlook for inflation over the medium term remains subdued”. To add to the ECB’s dovish stance, German Factory Orders released this morning rebounded less than expected in September, suggesting that the recovery in the manufacturing sector of Europe’s economic powerhouse seems to be losing momentum. Contracts for goods ‘Made in Germany’ jumped 1.3% on the month vs. 2.0% expected. Today’s market eyes another series of speeches from ECB officials.

Economic Calendar

12:00pm BoE Interest Rate Decision
12:30pm BoE Governor Bailey Speech
12:30pm US Initial Jobless Claims (Oct)
12:30pm US Good and Services Trade Balance (Sep)
13:00pm ECB’s President Lagarde Speech