Sterling stabilises awaiting policy meeting

GBP

Currency markets were slow yesterday with a lack of headline data causing little movements across the board. The pound struggled to find any further ground against the euro and dollar after Friday’s mixed data release.

With a rate hike already priced into the market, the pound has struggled to move past the range bound levels we are currently seeing.

While the market is in a risk-on condition, the downside risk for the pound is still largely prevalent. If the Bank of England does not meet the current market expectations, in terms of raising interest rates, we may see a large sell-off. Additionally, a consistent rise in Covid cases in the UK has sparked the government to consider their current winter plan. Some are calling for another lockdown and should this occur it will be detrimental to the pound.

USD

Despite the risk-on market, the dollar has started to reverse some of its recent losses. US Bond yields have risen and the dollar has benefited because of it. In addition, there is a growing expectation that next week’s FOMC meeting will see a tapering announcement. This comes after comments last Friday from Jerome Powell. He stated he thought the time was right for the US to start winding down their asset purchases. This being said, the risk-on market could limit any dollar gains.

Key announcements

None