Sterling rose against a weaker dollar this morning, although gains are still likely to be held in check by concerns about the uncertainty generated by Britain’s vote to leave the European Union and expectations of more interest rate cuts in coming months.
The Bank of England kept rates at record lows on Thursday but signalled that it would cut them again before the end of the year. It cut rates to 0.25 percent in early August and relaunched an asset-purchase programme to cushion the economic blow from Brexit.
Traders said sterling’s weakness accelerated late last week on a media report that UK Chancellor of the Exchequer Phillip Hammond was ready to give up access to the single market to achieve immigration restrictions during the Brexit negotiations.
Key events this week which could move the markets are Wednesdays UK Public finances and borrowing data followed by the US Rate decision later that evening.
Thursday will give us the US jobs data figures and Friday we have German and Eurozone Services and Manufacturing PMI data.
The world’s leading central bank makes its latest monetary policy announcement at 1900hrs UK time on Wednesday evening and analysts are pricing-in a live chance that the Fed will hike the cost of borrowing Stateside for the first time this year, a move which would provide the US Dollar with a pronounced boost.
Realistically, this is the Fed’s last chance to raise rates until December; it is holding a policy meeting a few days before the Presidential election in November, but any policy change is considered unlikely for that get-together thanks to the perceived desire from the US central bank to maintain its neutrality ahead of the election. For this reason, a decision to ‘hold’ would hurt the Buck.
If they do not hike the rate on Wednesday, that only leaves them with December.