A very busy week for markets as we saw further interest rate changes from the FED, BoE and ECB. Whilst all came out broadly in line with expectation, the rhetoric that followed had far more impact, especially from BoE head Andrew Bailey. He stated that pushing rates too high would likely push inflation down to zero in three years’ time, well below its 2pc target, triggering a two-year recession and forcing a million more people into unemployment. This was very much in contrast to the FED, with Chairman Jerome Powell indicating that further policy tightening is nowhere near done.
Whilst this caused a new bout of GBP weakness as markets faced disappointment, rates were further exacerbated by renewed ‘risk-off’ sentiment as investors fled the stock market in favour of safe haven USD based bonds. All this price action further confirms the magnitude of how pegged to interest rates currencies have become.
Going forward, major event risk comes in the form of the economic statement from the new Chancellor Jeremy Hunt (17th Nov). This will set out how the UK proposes to fill a £40bn hole in its finances, and no doubt will create further volatility for the Pound.
Talking off the Dollar, we now look to todays ‘non-farm payroll’ figure out of the US (1.30pm), a leading indicator of economic health. Forecast at 250k new jobs added, any deviation will have further implications for currencies across the board. Of late, rates have been particularly sensitive to this monthly number.
Have a good weekend, here if you need 😊