IFX Market Report: Monday 18th October 2021

The Pound spiked against the US Dollar this morning as markets became increasingly hopeful the Bank of England will raise interest rates sooner than previously expected. In an interview with the Telegraph at the weekend, MPC policy maker Michael Saunders warned that UK households should be ready for a BoE rate hike “significantly earlier” than previously expected, due to concerns that the recent spike in inflation could persist for longer than expected. Saunders went on to add that “markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that is appropriate”. Some investors have interpreted Saunders comments as a “signal” that the BoE could start raising interest rates by the end of December.

GBPUSD started Friday testing the 1.3700 mark, opening at 1.3697. Cable then went on to surge past 1.3750, closing the day finally at 1.3756.

GBPEUR also advanced on Friday, moving into the 1.18 range. The pair opened the day at 1.1794 and closed at 1.1866.

EURUSD in contrast made a loss on Friday. The pair started at 1.1614 but faced tough selling pressures in the session, finally closing the week at 1.1593.

On the data front, Monday’s focus is the US. This morning, Fed Vice Chair for Supervision Randal Quarles will be giving a speech. Investors will look for any indicators on the Fed’s next moves regarding policy. If Quarles makes any notable comments that could suggest the Fed distancing themselves further from the ECB on monetary policy, EURUSD could see some heighted volatility. Then in the afternoon from the US, September’s Industrial Production MoM is forecasted to come in at 0.2%, with a previous of 0.4%. At 15:00 October’s NAHB Housing Market Index will be released, followed by Monthly Budget Statements at 19:00, then Foreign Bond Investment and Overall Net Capital Flows at 21:00.

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