IFX Market Report: Friday 15th October 2021

Sterling was able to test key levels on Thursday and has maintained it’s recent gains against both the Euro and Dollar going into this mornings open. At present, GBPUSD sits comfortably above 1.3700 and GBPEUR is trading above 1.1800. Sterling’s recent surge is primarily due to a weaker US Dollar and market sentiment becoming increasingly ‘risk-on’. Contributing to the Pound’s vigour is the markets expectation that a Bank of England interest rate hike is imminent. Interestingly, Silvana Tenreyro, recognized as one of the most dovish of MPC members, said in an interview yesterday that “increasing interest rates to combat a temporary rise in inflation” risks being “self defeating”. Tenreyro also expressed her concerns over the UK’s growth, claiming that the economy was weaker than the bank had originally forecast and remains the equivalent of a “full-recession” below its pre-pandemic levels. Despite this, as markets have clearly indicated, these comments have done little to change the prediction among investors that the BoE will hike rates very soon. While there is some resistance to increasing rates, there are more policy makers in favour of raising rates than not. The consensus among the traders is that the BoE will “increase its key rate to 1% by the end of 2022, the highest in more than a decade, from the current level of 0.1%.

Given the “softer tone around the longer-dated US Treasury bond yields”, GBPUSD made upside advances in yesterday’s session but was unable to sustain those gains by the close. Cable opened the day at 1.3687 and closed the day at 1.3685.

Contrasts in approach to monetary policy was the main contributor of GBPEUR rise on Thursday. After starting the day at 1.1798, the pair surpassed the 1.18 handle and was able to close at 1.1807.

EURUSD dropped off slightly on Thursday. The pair started at 1.1601 and closed at 1.1591.

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