The Carney Question Answered

In the UK, the Carney question was resolved yesterday by his announcement to stay until June 2019, which allowed the currency to rise nearly 1 cent versus the US dollar towards the end of the day. Carney’s decision takes his term to the end of the period during which the UK will exit the EU, hence the modest relief seen as a result. Elsewhere overnight, both the Bank of Japan and Reserve Bank of Australia kept rates on hold. The BoJ pushed further into the future their projection for when their 2% inflation goal will be met, although this was no great surprise and the impact on the yen was marginal at best, USDJPY nudging back towards 105.00 level. The sense from the new Governor was that lower rates were less likely given the strength being seen in the housing sector, hence the rise in the Aussie rising around 0.5% against the US dollar.

For today, we enter a new month and with one week to go before the US election. As mentioned yesterday, polls have become a lot narrower after weekend developments, which leaves the race too close to call. Market don’t appear to be falling out of bed though, although the last week has seen volatility (as see in the VIX) for equities rising, together with a smaller increase in similar measures for FX. The next week is likely to see fairly narrow ranges on the majors given the lower probability of one side pulling convincingly ahead. Note that UK PMI data at 09:30 GMT is the main data focus in the UK, with US ISM data following at 14:00 GMT. Overall, the US dollar has been more reflective over the past week after what has been a strong showing during most of October, but expectations remain strong for a December increase from the Fed. This week’s meeting tomorrow will be scrutinised for any indication that firm’s up this expectation.