The start of the year was all about policy divergence and if this week is anything to go by, then we are ending the year with the same tone. The Bank of England Inflation Report yesterday saw inflation projections revised lower, pushing back expectations for a rate to the early part of 2017. At the same time, we have the jobs data today in the US which is being hailed as the most important jobs release since… the previous most important one. Recall that it was the soft reading on the headline reading last month (142k gain) that served to scupper expectations of an October tightening from the Fed, which is why this is perceived as the make or break release. On balance, the market pricing is towards a tightening in December, but just under 60% probability, which brings considerable scope for volatility should this release fall short of or exceed expectations. Expectations are for a 185k gain on the headline number, with the unemployment rate falling to 5.0%, from 5.1%. Clearly it’s going to take another number notably weaker than expected to shift expectations away from December. And on top of all this, we have the ECB keeping the market on its toes for early December.
What matters though is actual moves in rates. We were seeing a lot of those early in the year, what we are seeing now is largely changing expectations and in the case of the ECB, more unconventional measures. So we may be heading for multi figure moves on FX as a result. It’s all about context.