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Forex: Bank of England moving to reality?

The main focus for markets today will be the minutes to the November Bank of England policy meeting. Given the tone of the recent Inflation Report, which revised down inflation projections, it would be surprising if two members were still voting for higher rates as has been the case since August of this year. A lot has changed since then, not only domestically but also in the global economy, which is why we would expect at least one member to come back into the majority view. Sterling would probably view this as catch-up, but could be more prone to weakness if we see both members reverse their view. But the currency would not fall out of bed were this to happen, with the recent price action largely reflecting the fact that a revised rate profile has been priced in. Nevertheless, a move to a unanimous vote would help to consolidate the recent move above 0.80 on EURGBP.

Beyond sterling, the data calendar is relatively light, with just US housing starts and building permits seen later in the session, neither of which will rock the dollar. The yen continues to weaken on an underlying basis, as seen with the further move north on USDJPY above the 117.00 level. Meanwhile, since the central bank turned its back on the currency earlier this week, the rouble has stabilised vs. the dollar, with the central bank head saying speculators have been deterred, but the central bank remains ready to intervene if necessary. The trouble is that the factors pushing the currency lower remain in place and it could prove difficult for the rouble to push against these in the bigger picture. Otherwise, EURUSD remains in a consolidative phase, caught between 1.24 and 1.26 and for now this more range-bound activity looks set to continue.

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