Sterling has a dead cat bounce after BOE inaction

I must admit I was surprised that the markets were surprised that the Bank of England didn’t raise interest rates when they met this week. Sterling fell like a stone from Wednesday into Thursday and then stops dead. That used to be described as a ‘dead cat bounce’ but I’m sure that’s a phrase that’s frowned upon these days.

Dodgy terminology aside, the GBPUSD rate fell from nearly $1.37 to $1.3470 and has meandered in a tiny range around $1.35 since then. Bank of England Governor, Andrew Bailey fended off criticism. The BOE has been accused of misleading the markets by talking up the prospects of a rate hike ahead of the meeting and then not delivering. However, Governor Bailey said it was not the BOE’s job to “steer markets day by day and week by week”.

GBPEUR fell and stopped in exactly the same way as cable. This pair fell from €1.1820 to €1.1670 before GBP buyers emerged from the darkness and stopped the rot. It hasn’t bounced but neither has it fallen. The fact that there is obvious support for Sterling at these levels would suggest this is a terrific time for GBP buyers to cover some of their requirements. The BOE is going to raise the base rate at some point; the only question is when. But when they do…or even when they start talking about it in more certain terms… Sterling will advance.

Canadian unemployment forecast to be back to 2017 levels

The same sort of pattern can be seen in all GBP-based exchange rates. Ergo, GBPAUD is down to AUD 1.8230. That is still up compared to Monday but not by much. GBPNZD is also lower at NZD 1.8980 and that is down overall since the start of the week. The Canadian Dollar has been even more definite. GBPCAD is down to CAD 1.6770 this morning and that is 1% lower than Monday’s opening price. The common denominator here is commodities. NZ, Australia and Canada similar in the reliance their economies have on commodity exports and commodity prices are on the rise.

We will get Canada’s employment data for October this afternoon. There is a strong chance the unemployment rate will fall to 6.8% and that is impressive for an economy where the population is so sparsely spread. That would get the level back to a range we haven’t seen since the start of 2017. As you might imagine, that would boost the CAD even further.

US employment report should boost USD

The other one to watch today is the US Dollar. October’s employment report is expected to be pretty positive. A gain of 450,000 jobs and a drop in the unemployment rate to 4.7% are the headline forecasts. Anything better will lift the USD.

And, in the UK today, we will be celebrating Guy Fawkes Day and the gunpowder plot in which Mr Fawkes and his accomplices nearly blew up The British Government at the Palace of Westminster. You could go ‘eco woke’ on this and question why we celebrate by releasing tons of CO2 into the atmosphere through bonfires and fireworks. Or you could be political and wonder why it isn’t called ‘Nearly got ‘em Day’. Either way, I hope everyone has a safe one.

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