GBP: Bank of England due at noon

EUR: Stuck in a range

USD: Clarida tells us to look for tapering

Sterling

Finally the data calendar is going to give us something to talk about in the form of the Bank of England meeting at noon. While we’re nowhere close to raising interest rates, the key dynamic will now fall on what exactly the Monetary Policy Committee thinks about the continued use of stimulus.

Two members of the nine-person committee have made speeches in the past month hinting that they would prefer to end stimulus early so any voting record on QE that is less split than 7-2 will be seen as a disappointment and could limit sterling strength.

In the longer-term we will need to understand what the Bank’s thoughts on sequencing of hiking rates and cutting stimulus will be but today may too early for that conversation.

From an economics point of view, we must keep an eye on what the Bank of England thinks on unemployment given people who may have been furloughed from certain sectors may not be able/willing to take on jobs in new roles.

Sterling can easily pull higher today but a substantial risk remains to the downside should the Bank of England’s comments focus on the delta variant and furlough.

Euro

Top line growth for EURUSD left the pair around the 1.19 mark yesterday until the Clarida comments outlined below. EURUSD now finds itself in the middle of its 1.1750-1.19 range and dollar moves will govern the single currency for the rest of the week.

USD

A quiet day was upset by comments from Fed Vice-Chair Clarida yesterday who made his slightly more hawkish than expected thoughts on tapering clearly known. Despite the rise in delta variant cases he thinks that economic conditions will be strong enough to allow for a tapering of stimulus by the end of the year, leading to rate rises in 2023.

The fact that Clarida is now the third senior member of the Federal Reserve to hold a differing view is quite unusual and points to further volatility for the USD and also heightens the importance of the Fed’s Jackson Hole speech at the end of the month.

Yesterday’s ADP number was pretty weak and while it cannot be directly transcribed on to Friday’s official payrolls number, were we not in a world wherein Clarida’s comments were made then the dollar will have driven lower.

Friday’s number is now very important.

Elsewhere

USD strength yesterday made sure to take on haven currencies of the JPY and CHF which are forecast to continue to fall in a world wherein the Fed feels comfortable to hike interest rates and reduce stimulus. Holders of said currencies would do well to watch out.

Have a great day.

Market rates

Today’s Interbank Rates at 09:12 against sterling. Movement vs yesterday.

Euro	€1.174  –
US dollar	$1.391  –
Australian dollar	$1.879 ↓
South African rand	R20.01 ↑
Japanese yen	¥152.5 ↑