USD stable despite China’s warship waving

Despite China waggling their warships in the face of Taiwan’s leadership and the visiting Nancy Pelosi, the US dollar remained fairly stable yesterday. It would seem the markets are reasonably confident that China’s actions more bluster than battle but we don’t know that for sure. The US president has urged colleagues to give Taiwan special status as a major UN ally in a bid to ward off the Chinese aggression. We also had a rather upbeat ISM purchasing managers index for the service sector. So that calmed USD traders to some degree. The GBPUSD rate starts Thursday in the middle of its recent range at $1.2150 and the EURUSD rate is similarly rangebound at $1.0170. We will see the weekly jobless claims data from the US this afternoon and the BoE will announce its rate decision but more of that below.

BOE rate hike expected but what follows?

The Bank of England is widely expected to add 50 basis points to the base rate when they meet this morning. That will bring the UK base rate up to 1.75% for the first time since 2009. I think it’s safe to say that traders have already priced that move into the value of the pound. The key to sterling’s path from that point on will be the statement that accompanies the decision and any hints or guidance on the path for future interest rates and monetary policy. Governor Andrew Bailey is due to speak at 11:30 GMT and a more dovish tone is widely expected. So Sterling may well weaken in the aftermath of his sage words. As mentioned above, the pound starts today at $1.2150 and it is still in a narrow range against the Euro at €1.1950. Sterling has lost a little ground against the Australasian and Canadian dollars as safe-haven buying has ebbed due to the lowering of concern regarding China and Taiwan. Those less-nervous investors are moving funds away from the USD and that tends to flatter the currencies linked to commodity exports.

AUD stronger on trade balance and easing of Asian tension

Australia’s exports rose 5.1% in June whilst imports rose at a slower 0.7% pace. Hence the trade surplus grew to AUD 17,670 million. That gave the Aussie dollar a boost. So, the GBPAUD rate is down to AUD 1.7440 this morning; two cents below Tuesday’s high. The key to this currency pair today is in the hands of the Bank of England governor. So we will know by noon, what to focus on.

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