31/10/2017 - Pound Strengthens Amidst Rate Hike Expectations

GBP

Britain’s pound strengthened against the dollar on Monday, as traders geared up for a Bank of England policy meeting later in the week that they expect will produce the first increase in interest rates in more than a decade.

Most economists expect the central bank to raise rates on Nov. 2, lifting the official cost of borrowing to 0.5 percent after last year’s 25-basis-point cut in the aftermath of the vote for Brexit.

While that hike is largely priced in, traders will be watching closely for what members of the Bank’s Monetary Policy Committee (MPC) say about future interest rate rises, and they will also be looking carefully at updated forecasts for growth and inflation.

Speculators added to their bets against the pound in the week up to last Tuesday, data showed on Friday, with net positioning slipping into negative territory for the first time since mid-September, on uncertainty over Britain’s exit from the European Union and the hit that would have on the economy.

USD

The U.S. dollar fell on Monday after posting its biggest weekly rise this year as investors cautious amid news that President Donald Trump’s former campaign manager faces charges of conspiracy against the United States. The caution was underscored by a spate of U.S. economic reports due to be released this week and ahead of a meeting of the Federal Reserve’s policymakers Tuesday and Wednesday.

The dollar enjoyed its best week of the year last week and the risk-off environment was prompting traders to sell the greenback and take those gains. Net short bets on the dollar fell to their smallest in nearly three months and roughly half of what they were a month ago, according to calculations by Reuters and Commodity Futures Trading Commission data released last week.

Friday’s release of third-quarter economic growth data showed the economy expanded 3.0 percent, beating forecasts. It was the first time since 2014 that the U.S. economy has experienced growth of 3 percent or more for two quarters in a row.

EUR

Spain’s direct rule over Catalonia took hold smoothly on Monday as employees ignored calls for civil disobedience to turn up for work, and secessionist parties agreed to stand in new elections, implying acceptance that the regional government was dissolved.

Ousted Catalan President Carles Puigdemont travelled to Belgium with several other members of his sacked administration, a senior member of Spain’s ruling People’s Party said. Spain’s state prosecutor, Attorney-General Jose Manuel Maza, called for charges of rebellion and sedition, as well as fraud and misuse of funds, to be brought against Catalan leaders.

Other regional leaders did not turn up to their offices though some of their staff did. One of 140 senior officials appointed directly by the outgoing government described the situation as “normal” and said he had not yet received any letter of dismissal.

Key Announcements

15.00 – USD – CB Consumer Confidence; Forecast at 121.1 against previous of 119.8