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Idea of the Day

This could be a tricky day for sterling. The Bank of England releases its first inflation report under its new Governor Mark Carney and he’s said that he will give more details about potential forward guidance from the bank. This means giving more solid indication of future policy, either via a time-frame or dependent on the evolution of data such as output or employment.

We had hints of this in July, when the statement accompanying the rate decision suggested the market had run ahead of itself in pricing the risk of higher rates (largely owing to the change in US interest rate expectations). So sterling will have to balance any change in policy on this front with what will likely be an upward revision to growth projections form the Bank. As such, it could well be that the initial reaction does not hold and the details are digested, but ultimately forward guidance will be aimed at keeping short-term market interest rates low, which will ultimately prove negative for the currency.

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Data/Event Risks

GBP:  The inflation report is released at 09:30 GMT and could prompt a fairly volatile session for sterling given the many factors to look at (see below).

AUD:  Employment data will be released overnight. The RBA indicated a more neutral outlook on interest rates so firmer employment data could allow the Aussie to further build a base for a short-term reversal higher.

Latest FX News

JPY:  The yen benefitting overnight from the weaker tone to stocks, the Nikkei down 4%. The (inverse) relationship between the yen and stocks remains fairly pronounced, although has been declining from the near-terms peak seen in July. The BoJ meets today, with the announcement tomorrow.

AUD:  Weakening a little during Asian trade, but holding on to the majority of the gains seen after the RBA decision yesterday. The main question is whether a near-term base can be formed to move the Aussie back above the 0.90 level against the USD on a sustained basis.

GBP:  Sterling was a little reluctant to push ahead on yesterday’s better than expected production data, which showed output rising 1.1% on the month. GBPUSD still appears reluctant to push above the 1.54 area for now.

EUR:  Not the easiest trading conditions on EURUSD right now and whilst we did push above the 1.33 level yesterday and have held above there for most of the Asia session, there remains plenty of offers above this level which are serving to cap further gains.

Further reading:  

USD/CAD breaks above 1.04 – mostly due to the USD side of the pair

Job openings exceed expectations, join other strong US figures