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Bank of England comments and the pound

Daily Currency Update

GBP - British Pound

Bank of England governor, Andrew Bailey, delivered some cautiously optimistic comments yesterday, stating that he believed the minimum threshold for monetary tightening in the UK has now been successfully met and we will see interest rates pushed back up in the years to come.

These comments may have pushed forward market expectations of an interest rate hike in the UK to middle of 2022, but the pound did very little to react. This may have been to do with other comments that Bailey made during the Monetary Policy Report Hearings, stating his fears that we are seeing a slowdown in the economic bounce back from a year of COVID-19 lockdowns, and that he is worried for the numerous companies trying to fill jobs.

The market has remained fearful of the impact on the UK economy once Chancellor Rishi Sunak pulled back on his various stimulus packages. This includes the well-publicised furlough scheme, and it looks as though the governor of the Bank of England shares some of these concerns. The pound remains pegged back and could be impacted by how the recovery from the pandemic plays out in the coming months.

Key Movers

GBPUSD dropped for the third day in a row and bottomed out at 1.3725 yesterday, reaching its lowest intraday level since the end of August. A stronger US dollar seems to be the theme, partly driven by risk aversion from rising global COVID-19 cases, and ongoing speculation about how the US Federal Reserve will act to tighten its monetary policy in the coming months. Central banks and how they act seems to be the main focus of the markets.

Focus today in the US remains on its weekly jobless claims posting. After last week's disappointing non farm's payrolls figure, the market will want to see if that was merely a blip, or a longer term trend in weak US data. Another weak figure here could push the US dollar lower as the market worries about whether there is enough sustainable growth for the US Federal Reserve to act now.

EURUSD fell by 0.3% yesterday following the release of French trade data which indicated that their trade deficit had widened in July. All eyes remain on today's European Central Bank (ECB) announcement just after midday, where market reaction could be driven predominantly by inflation forecasts, tapering discussions, and any decision on whether to stop their asset purchasing. A likely outcome is that there is talk of part tapering without fully ending the ECB's pandemic support, but the size and nature of the tapering will be watched closely by those that trade the euro.

Expected Ranges

  • GBP/USD: 1.3760 - 1.3840 ▼
  • GBP/EUR: 1.1660 - 1.1735 ▲
  • GBP/AUD: 1.8625 - 1.8890 ▲
  • EUR/USD: 1.1765 - 1.1850 ▼