Global Foreign Exchange Market News Update
GBP/USD currently trading at 1.5430, GBP/EUR is at 1.1527, so Sterling is lower than where it was this time yesterday. Traders are starting to price in some form of movement from the Bank of England quarterly inflation report and the publication of the forward guidance that we have been waiting so long for in the United Kingdom, from Governor Mark Carney. It could take on many guise and whether it would be tied to a specific time period, for example 18-months, 2-years, or 3-years, whether it would be tied to unemployment or wages, or whether like Mario Draghi’s for the foreseeable future, it will just be left very open.
We think this would be very negative for the Pound, you can see the reaction in Sterling markets. The previous good data on Monday (the Services PMI) of 60.2, didn’t provoke a huge rally in Sterling, Tuesday’s industrial manufacturing production figures, didn’t a huge rally in Sterling either. Investors are looking to take Sterling lower over the course of next week I’ll say and as a results we’re looking for Sterling to falloff over the course of the day, as we get the details of this forward guidance plans.
I believe that it will be tied to unemployment, with certainly a hint towards wages as well. We know that wages have to grow at a viable rate, above inflation for the recovery to really take hold. People don’t really give a monkeys about PMIs of 60.2, they care about their wage packet and how that’s doing against price increases. So hopefully we can say that the statement starts at 10:30 GMT and more likely we’ll see the Sterling trail off through that statement as a result. That’s actually what we are looking for.
How Negative On GBP?
The United States dollar strengthened overnight as a basis of two Fed speakers coming out and certainly standing more hawkish around monetary policy i.e. tapering, sooner rather than later. Chuck Heavens, who’s a member of the FOMC, who’s normally on the dovish side of things came out and set a date, depending of course is likely that the Fed would tapper its assets purchases by the end of the year and could start as quickly as next month’s meeting. This helped the United States dollar strengthened over the course of the session as well.
Elsewhere, it has been fairly quiet, but still, if it wasn’t for the quarterly inflation report, this would be a very doldrums’ kind of day and we won’t expect any movement. However, that is the main indicator of things (10:30 BST) this morning.
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