The markets have been very volatile over the past week with the main catalysts being the Fed and ECB interest rate decisions, both pushing rates up by 25 bps each, and the markets assuming that there will be a pause on rate hikes for the foreseeable future, when both Central Banks essentially stated that no further hikes were given and will be data-driven instead - over the last week we have seen the Dollar strengthen and the EURUSD price move from 1.12 down to 1.09 and GBPUSD from 1.2990 down to 1.27.d this week.
Just 2 weeks ago, most traders had the next BoE hike priced at 50bps, with Sterling outperforming against most majors following these bets- after a cooler inflation reading in July, and with the Fed and ECB’s latest stance on interest rates- most analysts have now changed their tune and are expecting a 25 bps hike from the Bank of England alongside similar guidance stating that they will be data led on their next decisions. If the decision does go as above, then we will see Sterling weaken. The Pound has risen against both the Euro and Dollar this year due to hawkishness from the BoE and better-than-expected data- once the hawkishness dies down then I expect to see the Pound settle down as well. The only thing I will say is that just because analysts expect it, doesn’t mean it will happen, they had a different opinion just 14 days ago, I personally still see a case for a 50bps hike to get ahead of the curve on inflation and then signal to the markets for a pause, but that is just my personal opinion.
The BoE is essentially the most important release this week, however, we do have European inflation data on Monday, all expected lower, Australian interest rate decision on Tuesday with a hike expected- and Non-Farm Payrolls due on Friday.
