Carney Comments Crush Sterling
Morning mid-market rates – The majors
November 3rd: Highlights
- BoE hikes by 25bp
- Brexit headwinds “cause for concern”
- U.S. employment report due later
Not really the desired effect!
Following Carney’s comments, where he said that any future rises would be “at a gradual pace and to a limited extent”, the pound fell by close to 2% from its day’s highs versus both the dollar and euro reaching lows of 1.3042 and 1.1189 respectively.
Sterling rose initially following the announcement of the hike and the news that the vote had been 7-2 in favour of the first hike in a decade. The two members of the MPC who voted to leave rates unchanged were Sir Jon Cunliffe and Sir Dave Ramsden both of whom are Deputy Governors. It seems Silvana Tenreyro and Gertjan Vlieghe who had both spoken recently of their need to be convinced that a hike was necessary were seduced by the committee’s agreement that this hike would be a one-off.
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Brexit remains a dark cloud on the horizon
The effect of the Brexit decision is having a serious effect on business investment although employment is at its highest level for forty years and more people are working than ever before in the U.K. However, the uncertainty going forward over what the outcome of Brexit will be is having a serious downward effect on both output and consumption. Once the picture becomes clearer the MPC will reconsider the continued economic effect and act accordingly.
The negotiations recommence next week so it may not be too long before the MPC has some further information to go on. The recent optimism surrounding both the start of stage two of the negotiations could be premature given the ambiguous nature of recent comments from Brussels.
Trump Plays it safe!
Powell’s most immediate job will be to withdraw emergency measures, put in place to provide support during the global financial crisis, without suppressing the nascent growth that is now gaining strength.
Today sees the release of the U.S. employment report for October. Given the revisions of sometimes up to 20% in the data the month after its release it should probably be renamed the “Estimate of Non-Farm Payrolls”. Analysts are expecting a massive change from September when 33k jobs were lost because of storms in the South West. The expectation is for a headline of 300k new jobs to have been created and a small positive revision to the September number.
FOMC members will be most interested to see the hourly earnings data, yet despite a potentially weak 0.3% increase compared to 0.5% in September, the Fed is still on course to raise rates next month.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”