Market News & Insights
2 November 2017

Markets Hoping for no Knee-jerk Reaction From Carney

For the first time in more than a decade, the Bank of England is expected to raise interest rates up to 0.5% at noon today. Estimates are showing a 90% chance of a rate rise but whatever decision the Monetary Policy Committee makes, it is unlikely to be an easy one with wage growth behind the rate of inflation. Household borrowing is close to all-time highs and even a small increase in rates could put major pressure on many areas of the economy. Investors will be keeping a very close eye on the tone among the policymakers as to how likely further interest rates in 2018 are.

Having gained against GBP towards the end of trading on Wednesday, the euro was trading just shy of highs seen only since July last year against sterling. Since investors have made the majority of their gains from GBP strength, as the expectation of a rate hike has been ‘priced into’ the market for some time, analysts expect the euro to gain steadily against GBP for the remainder of the week at least. In the unlikely event of the Bank of England deciding against a rate hike, experts predict EUR to gain to around 0.8925 – this seems unlikely however. In terms of market data releases, we have a raft of Manufacturing PMI data from Europe this morning with no great surprises expected.

The US dollar came under slight pressure last night as markets eagerly awaited the release of the US tax bill. After an initial one-day delay, the house Republicans are expected to release the tax bill later and any further delays could cause more weakness in the dollar. The delay was largely down to internal disagreements over how proposed tax cuts will be paid for as the bill is seeking to cut up to 6 trillion dollars over the next 10 years. The Fed left rates at 1.25% as expected but markets are more expectant on a December rate hike as solid economic growth from the US continues. With a strong reading from ADP employment data on Wednesday, non-farm payrolls is expected to be a strong reading of 310,000 this Friday, up from -33,000 last month which will add fuel to chances of a rate hike in December.