25/10/2017 - BoE November Rate Rise Still an "Open Question"

GBP

The pound weakened against other major currencies yesterday as Bank of England Deputy Governor Sir Jon Cunliffe warned investors that although borrowing costs are highly likely to rise over the next three years, a November rate hike still remains an “open question” given the recent slump in the economy.

Speaking to a Welsh newspaper, Cunliffe said that while the UK economy suffers weak growth, real wages have declined due to higher inflation which has been driven by a weaker pound since last years EU referendum.

His comments came at the same time as those of UK Chancellor Philip Hammond who yesterday told parliament that the government remains committed to reducing its current budget deficit in a “measured and balanced” way.

In his last major appearance before next month’s annual budget on Nov 22, Hammond told ministers that the economy was fundamentally strong and did not require extra stimulus. He told parliament that "Increasing activity in the construction sector is a very good way of creating jobs but at 4.3%, our economy is approaching full employment, the output gap is extremely small."

As of yet, Hammond has no plans to balance the budget until the middle of the next decade. Markets expect that this will give him leeway to boost spending if needed in order to support the economy as the impact of Brexit begins to weigh in on consumers and businesses.

USD

The dollar rose yesterday as investors turned their focus towards who will be the next chair of the Federal Reserve. Earlier this week, president Trump told reporters that he is “very, very close” to deciding who should be the next head of the U.S. central bank after interviewing five candidates for the role.

Among the five nominees is Stanford economist John Taylor and Fed governor John Powell both of which are thought to be more hawkish than current Fed leader Janet Yellen whose term expires in February.

The dollar also received support at the start of the week after president Trump on Sunday showed his optimism surrounding the GOP tax overhaul saying that the reform could be passed by congress before the end of the year.

Key Announcements

09:30 – GBP: Prelim GDP (QoQ) Forecast to remain unchanged at 0.3%

13:30 –USD: Core Durable Goods Orders (MoM) Forecast to remain unchanged at 0.5%