UK: Weekly FX Market Update 31 October

GBP

• The “Rishi Rebound” coincided with weaker US Treasury yields and helped GBPUSD reach resistance at 1.1630

• GBPEUR joined in the party and was well supported as price attempted to trade above the October high of 1.1654

• Bloomberg gives the Bank of England (BoE) a 90% probability of hiking interest rates by 0.75% this Thursday

• UK Chancellor Hunt has pushed back his fiscal statement to November 17th

Following the appointment of Rishi Sunak as the UK’s PM, the third within 2 months, and a reshuffling of the Cabinet, the pound gained support with GBPUSD closing 2-3% higher on the week. However, the direction from the pound this week may move from politics to monetary policy, and the decision of the Bank of England on Thursday. With Bloomberg giving a 90% probability of a 0.75% rate hike, to what extent is this already priced in? Could Thursday underwhelm, disappointing the market and push Sterling lower?

EUR

• EURUSD traded above parity last week as the ECB hiked interest rates by 0.75% to 1.5%. However, it then closed the week at 0.9900

• It seemed like buyer’s remorse after the rate hike, as President Lagarde said that the probability of a recession in the Eurozone had increased

• ECB Board Member Villeroy added that there was “no obligation” to deliver a third jumbo rate hike at the next meeting

• Eurozone CPI is released today and ECB President Lagarde speaks on Friday

• Will EURUSD trade above parity again, or is it set to move lower in the face of a hawkish Fed?

USD

• The market sniffed a possible Fed pivot last week after weak US Housing data. It sold US Treasuries while buying US equities, selling the US dollar.

• The move fizzled out as the ECB delivered its dovish rate hike and US Personal Consumption Expenditure was released as expected

• Bloomberg gives the Fed a 95% chance of hiking interest rates by 0.75% on Wednesday, eyes therefore could turn to what Fed Chair Powell will say afterwards

• BlackRock Investment Managers expect ‘pivot language’ from the Fed this week. Could the market sell the US dollar again as a result?

RoW

• The Bank of Japan maintains its ultra-easy monetary policy

• Chinese Banks Sell USDCNY