IFX Market Report: Friday 5th November 2021

Sterling plummeted on Thursday as the Bank of England decided to keep interest rates on hold this month. Despite the Monetary Policy Committee needing “hard evidence” to raise rates, Governor Andrew Bailey noted that the decision was a “very close call”. The MPC voted by a “majority of 7-2 to keep interest rates at 0.1% and by a majority of 6-3 to maintain the amount of quantitative easing at £895B”. The central bank also claimed that they expect inflation “to rise to around 5% in the spring, but then fall back” and be close the banks “25 target in around two years”. With rates staying the same this month, the consensus amongst investors a “rate rise is on the way – and in all likelihood, the committee will vote for a hike in December”.

“Failure of the BoE to deliver on the expected 15bp hike today has triggered quite a sharp adjustment in money market rates and the pound”. GBPUSD opened the day relatively optimistic at 1.3643. Following the BoE decision Cable sank, closing the session at 1.3491.

GBPEUR also suffered a drastic decline on Thursday. After starting the day above 1.18 at 1.1809, the pair fell below the 1.17 handle, closing the day finally at 1.1687.

EURUSD in contrast was unaffected by yesterday’s central bank decision, trading mostly flat for most of the day. The pair opened at 1.1552 and closed at 1.1543.

On the data front, to close the week there are speeches from BoE members and data releases from the Eurozone and US. At 10:00 today the Eurozone is releasing its Retail Sales number for September, forecasted to come in at 1.5%, with a previous of 0%. At 12:15 BoE member Dave Ramsden will be speaking, followed by MPC member Silvana Tenreyro at 13:00. At 12:30 the US will publish its October Non-Farm Payrolls and Unemployment Rate. NFP is expected at 450K, with a previous of 194K. Unemployment Rate is set to drop slightly, forecasted at 4.7% and a previous of 4.8%.

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