GBP - British Pound
The pound held steady yesterday after a week of better-than-expected data posted from the UK. This left GBP trading just below 6 week highs against the USD. However this lack of volatility is surely short lived as the Brexit deadline looms. The fate of the British currency now lies with PM Johnson and his Brexit cabinet and the European willingness to negotiate on an alternative to the NI backstop issue. Despite Johnson’s firm stand on the no-deal, analysts have reduced the chances of a no deal Brexit on Oct 31st from 65% to just under 30%. As has been the case for the past 18 months, the pound has taken solace from the news, hence the current stability.
Euro traders look to the ECB meeting this afternoon. A 10 basis point interest rate cut has been priced into the market and therefore any deviation from this will cause some extreme spikes in volatility until the market repositions itself at equilibrium.
All eyes today are fixated on the ECB monetary policy announcement. With talks of a technical recession in Germany on the horizon and the Euro hitting 2 year lows against the USD last week, many expect a greater cut than has currently been priced into the market. With the Eurozone economy in disarray, many argue a 25 basis point cut is necessary in order to generate the stimulus required to counteract the global slowdown.
Rate cuts aren’t the only tool that the ECB has at their disposal. They are also able to utilise a new asset purchasing program, compensation for banks, stronger forward guidance and a potential quantitative easing program. The statement is due to occur at 12:45pm and the ECB conference at 1:30pm.