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By xemarketanalysis October 23, 2017 11:45 am
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    XE Market Analysis: Pound Slumps as UK Monetary Policy in Spotlight

    OVERVIEW

    • Sterling on the backfoot as markets prepare for UK GDP ahead of the interest rate announcement next week.
    • Kiwi Dollar reaches a five-month low on labor government concerns. 
    • Donald Trump says he will decide on the next FED chair "very shortly".

    HIGHLIGHT

    The Pound is in the spotlight ahead of the much anticipated BOE's MPC interest rate announcement on November 2nd. Ahead of the announcement, the two new MPC members have made comments suggesting they are not sure if it is the right time to raise rates. In addition to this, we have the UK Q3 GDP number out on Wednesday. If this number is below forecasts, we may see more of the MPC members voting for no rate hike. This could cause the Sterling to dip immediately as the market is currently pricing in on an 81% of a rate hike.

    US DOLLAR

    The Dollar is stronger today as Donald Trump said he will decide on the next FED chairman "very shortly". Speculation is that the next FED chair will be more positive on the economy and adopt a more hawkish stance on monetary policy. The Dollar also attracted some same haven flow as BOJ President Abe looks set to continue with Abenomics. 

    BRITISH POUND

    The Pound is weaker today as markets prepare for Wednesdays Q3 GDP number, this is even more important than normal as it is ahead of next week's interest rate announcement in the UK. Right now, the market is 81% convinced Mark Carney will increase interest rates to 0.5% when the MPC meeting adjourns on Thursday, November 2nd unless the GDP growth number is significantly lower than forecasts.

    EURO

    The Euro is stable or some might say strong as it sits more than 10% higher against the Dollar from the beginning of 2017. This may prove a nightmare for ECB President Mario Draghi on Thursday as he is set to taper their ECB bond-buying program. A taper will squash the chances of a rate hike from the ECB in 2018 and potentially leave the Euro on its upward trend. 

    CANADIAN DOLLAR

    The Loonie is higher today as the Canadian currency tracks crude oil prices higher. The oil price climbed on the back of a report on US drilling activity showing a slump in drilling. This has helped the Loonie claw back some losses after last week’s poor retail sales data. 

    AUSTRALIAN DOLLAR

    The Aussie Dollar has now lost three percent since last month’s two year high. A stronger US Dollar due to progress being made in tax reform has left the Aussie Dollar sidelined and the carry trade being unwound.

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