Daily Currency Update

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Sterling soars on Bank of England announcement

GBP - British Pound

The Bank of England took centre stage on Thursday as the central bank left its interest rate unchanged at 0.1% but boosted its bond buying programme by a larger than expected £150 billion. Though Sterling's reaction seemed counterintuitive, normally weakening after such an announcement of Quantitative Easing, it was the lack of rhetoric around any further rate cuts which would send the base rate into negative territory for the first time in its history, which the market took as positive news for the pound.

Rishi Sunak, UK Chancellor, added fuel to Sterling's rally yesterday, by extending the Coronavirus Job Retention Scheme that would provide furloughed employees 80% of their usual salary for hours not worked for the next five months, taking the scheme through the difficult winter period, all the way to March next year. He has also agreed to support the self-employed in a similar manner.

Sterling's rise could be pegged back next week, as the effects of a second nation-wide lockdown in England start to take hold, and the impacts to the retail sector become evident during what would normally be a busy Black Friday shopping season. Though Sunak's announcement yesterday is welcome, many economists believe that we are simply delaying the inevitable in the UK, and we are on for a very difficult 2021 with a deep recession imminent.

Key Movers

The US dollar fell victim to a heavy sell off as US election chatter continues to dominate global currency and equity markets. Nearly 48 hours after the US presidential election, a winner is yet to be announced. President Trump has been relentless in his stance that he will contest the tallies in all recent Biden won states, with markets speculating it could be weeks before a result is announced.

The currency markets don't appear to be spooked by the uncertainty around the election, with the Dow Jones Industrial average also performing extremely well in equities. The thoughts are that whatever the outcome, a split government will be positive for the US economy, with the chances of Biden being able to push through sweeping tax reforms or regulatory overhauls now difficult without an overwhelming majority.

The Federal Reserve's decision overnight to leave interest rates and the size of the Quantitative Easing program unchanged was widely anticipated and hence had no real bearing on market movements. There were no surprises in the US central bank's statement either stating that economic activity continued to recover. Fed Chairman Powell did confirm that the pace of improvement in the economy has moderated and that further support is needed from monetary and fiscal perspective.

Today sees the release of October's non-farm payrolls figure in the US. This is the most highly anticipated employment data out from the States, and will be an indication of the path of US recovery. Job growth is expected to slow but the unemployment rate and average hourly earnings growth are expected to improve. US companies added fewer jobs in October but they are hiring and the unemployment rates are falling.

Expected Ranges

GBP/USD: 1.3020 - 1.3190 ▲

GBP/EUR: 1.1035 - 1.1125 ▼

EUR/USD: 1.1760 - 1.1890 ▲

GBP/AUD: 1.7880 - 1.8300 ▼

GBP/NZD: 1.9080 - 1.9400 ▲