26/10/16 - UK opens door to more QE

GBP

Sterling slipped on Tuesday, weighed down by expectations that the Bank of England Governor Mark Carney flagged the possibility of further monetary easing when he spoke later in the day. Carney testified at the House of Lords Economic Committee to discuss the economic consequences of the Brexit vote and he has the potential to unsettle the pound which has steadied in recent days.

Traders said with investors pricing out chances of a near-term rate cut from the BOE, a dovish tone from Carney could see the market start to re-price the prospect of a rate cut and push the British pound lower. British Finance Minister Philip Hammond said he could not see a situation where he would reject a request by the Bank of England to boost the economy by buying more bonds.

Carney's testimony also comes at a time when relations between the BOE and the government appear tense after the Prime Minister Theresa May warned that quantitative easing was having an adverse effect on savers and pensioners. Carney hit back saying he will not "take instruction" over policy, the governor deflected questions on how long he’ll stay at the Bank of England, saying his decision on whether to serve a full term as governor won’t be a reflection on the U.K. government.

USD

The dollar hit its highest level in nearly eight months against the euro and a roughly three-month high against the yen on Tuesday on growing expectations that the Federal Reserve would raise interest rates in December, while the offshore yuan hit a record low.

Traders saw a chance of more than 78 percent that the Fed would raise rates in December, up from a roughly 74 percent chance Monday, according to data from CME Group's FedWatch program.

Recent comments from Fed officials have stoked those expectations, with investors awaiting comments from Atlanta Fed President Dennis Lockhart later in the session. The Greenback has also been buoyed by US Democratic presidential candidate Hillary Clinton leading Republican Donald Trump in recent polls, with the dollar index, near almost a nine-month high of 99.119 earlier on Tuesday.

Key Announcements

15.00 – USD – Crude Oil Inventories; Forecast at 0.7M against a previous of -5.2M.