Pound Rises on Brexit Hope Awaits BoE

The US dollar is higher against most major pairs on Wednesday. The Japanese yen and the British pound were outliers as they both rose in the session. The Bank of Japan (BOJ) kept monetary policy unchanged as expected earlier today, and the Bank of England (BoE) is anticipated to do the same. Positive Brexit comments today boosted sterling ahead of the central bank’s Super Thursday.

  • US private payrolls beat expectations with a 227,000 gain
  • BoE rate to remain intact, but focus on press conference
  • Post-Brexit trade deal deadline set for November 21

Pound Sensitive to Brexit Chatter

The GBP/USD rose 0.60 percent on Wednesday. The currency pair is trading at 1.2778 ahead of Super Thursday. The Bank of England (BoE) will release its Inflation report, monetary policy summary, official bank rate and the votes from MPC members at 8:00 am EDT. BoE Governor Mark Carney will host a press conference at 8:30 am EDT.

Sterling is still 0.40 percent lower than the USD on a weekly basis as Brexit concerns continue putting downward pressure on the pair. The rebound on Wednesday came after a moment from UK Brexit Secretary Dominic Raab said that the exit deal with the EU would be finalized by November 21. With less than a month to go it falls in line with what members of both negotiation teams have said. The deal is mostly agreed to, 95 percent by some measure but the final stretch has proven difficult.

The backstop issue could be close to solved, but details are scarce and with this new line on the sand politicians are put under even further pressure to compromise if a deal is to be reached in time.

The Bank of England (BoE) will keep monitoring the situation as a failure to reach a deal would put the UK economy on the brink of a recession. Standard and Poor’s published a report where the most immediate outcome could be a credit rating downgrade.

Despite the assurances from some politicians that a deal is very close, the probability of a no-deal exit has actually gone up the market remains unconvinced given there have been few details on the actual agreement and a lot of time spent on the backstop.

Governor Carney has been clear on the risks of a no-deal Brexit, and his comments on Thursday might cancel out the optimism based move in the pound.

Dollar Rides Strong Fundamentals to Overcome Euro

The EUR/USD lost 0.22 percent on Wednesday. The single pair is trading at 1.1318 after strong US fundamentals have given a leg up to the US dollar. The ADP private payrolls report exceeded expectations ahead of Friday’s release of the U.S. non farm payrolls (NFP). The US economy is forecasted to have added 200,000 jobs. The September NFP numbers underperformed, but weather disruptions due to Hurricane Florence were a factor.

A recovering stock market and more risk tolerance from investors took the US dollar higher against major pairs. Stronger US spending on Monday, consumer confidence on Tuesday and private payrolls and the employment cost index on Wednesday have given the greenback a strong argument to appreciate. Manufacturing is up next on Thursday and of course the biggest indicator in the market the U.S. non farm payrolls (NFP) will be published on Friday.

The US dollar is on track to a 16 month high with solid fundamentals but also a fine balance of investor appetite for the safety of the big dollar. The data might not be impressive but it is consistent, that is something no other major economy can claim.

Gold Lower but Geopolitics Keep it in Play

Gold prices fell on Thursday. The yellow metal is trading at $1,214 after the US dollar recovered its mojo with strong fundamentals. US indicators this week have been solid, pointing to more monetary policy tightening by the U.S. Federal Reserve. The central bank is heavily anticipated to hike in December with more to come in 2019.

Gold had lost some of its luster as a safe haven as rate differentials pushed investors to seek safety in currencies. The stock market sell-off earlier this month triggered by US rate hike anxiety put the yellow metal back on investor’s radars

Oil Tumbles on Oversupply Concerns Despite Strong Demand

Oil prices dropped on Thursday despite a the expected buildup in US crude inventories matching the forecast, and a larger drawdown in gasoline and distillates. The market is starting to price in a smaller than anticipated drop in crude exports from Iran as its biggest customers remain defiant on following US sanctions.

West Texas Intermediate graph

US oil stocks have risen for sixth consecutive weeks, but with product stocks decline the biggest factor behind the decline in energy prices was on what will happen in November when the US sanctions against Iran kicked in. Originally oil prices pointed to $100 or higher, until Russia and Saudi Arabia pledged to close the gap left. Now with production already rising, the question on how big will the gap be to begin with is making investors reconsider. If Iran and its customers find enough loopholes to avoid US sanctions there could be more supply than originally intended, putting the black stuff on the back foot.

Market events to watch this week:

Thursday, November 1
5:30am GBP Manufacturing PMI
8:00am GBP BOE Inflation Report
8:00am GBP MPC Official Bank Rate Votes
8:00am GBP Monetary Policy Summary
8:00am GBP Official Bank Rate
8:30am GBP BOE Gov Carney Speaks
10:00am USD ISM Manufacturing PMI
8:00pm NZD ANZ Business Confidence
8:30pm AUD Retail Sales m/m
Friday, November 2
8:30am CAD Employment Change
8:30am CAD Trade Balance
8:30am CAD Unemployment Rate
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza