Sterling prepping for BOE hike

The UK budget did pretty much what everyone expected. Not a lot as far as currency markets were concerned. Sterling bobbled about a bit but starts Thursday roughly where it started Wednesday. GBPEUR is around €1.1850 and GBPUSD is just below $1.3750. I won’t bore you with the details of the budget; I am sure the TV news and tomorrow’s chip wrappers have done that already but, suffice to say, the extra spending hasn’t lured traders or investors. I guess, like me, they are wondering how it will be funded.

Sterling’s performance across the range in the last 24 hours has been…..now what’s the word….Ah yes…Meh! That’s the perfect description. That is likely to change today though because the European Central Bank will be in action and that will impact the Euro. Also, we will see US economic growth data in the afternoon. That will shift the US Dollar. Add in the expectation that the Bank of England may well raise the UK base rate from 0.1% to 0.25% on the 4th of November, and volatility is likely to pick up in the coming days.

BOC sets a positive tone and halts bond-buying

Yesterday, The Bank of Canada halted their bond-buying programme and hinted at an interest rate rise in Q2 2022. That is earlier than previously forecast and it served to boost the value of the Canadian Dollar. GBPCAD dropped like a stone initially, bottoming out just above CAD 1.69 but the Pound’s support has lifted this pair to just above CAD 1.70 this morning.

ECB could raise base rate

We can probably expect a similar decision from the European Central Bank today. They may not halt all bond activity but the flow is likely to be towards normalising their market activity and we await hints on when the ECB may start raising their own base rate. Their deposit rate is currently minus 0.5%. So banks are being charged for depositing funds with the ECB. It has taken a while but banks are now passing on those charges to clients.

US GDP expected to calm to 2.7% in Q3

The US GDP data should show a calming of the excessive growth data we saw following the covid lockdowns. A forecast growth rate of 2.7% for the three months to September is more like normality and shouldn’t damage the USD to any great degree, even when compared to Q2’s distorted 6.7%.

The GBPJPY rate is half a Yen lower today after Japanese retail sales only dropped 0.6%, rather than the forecast of four times that contraction. We also saw the bank of Japan keep their base rate on hold at 0.1%. Surprisingly though, we saw quite a sizable drop in foreign ownership of Japanese assets like Bonds and Equities. Given the use of the yen as a safe haven and the troubles being seen in China, that was a surprise.

And it was 190 years ago today that Michael Faraday demonstrated his dynamo forerunner, producing electricity through electromagnetic induction. That was the most profound game-changer. Despite his humble start in life, he wasn’t in it for the money. He once said, “I can at any moment convert my time into money, but I do not require more of the latter than is sufficient for necessary purposes.”

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