Pound strengthens on expectations of Hawkish BOE outlook this week

Monday, November 02, 2015

Crunch time for the Bank of England is fast approaching as policymakers meet this Thursday for the penultimate MPC meeting of the year. BOE governor, Mark Carney, had commented over the summer that forward guidance and further details regarding the timing of the first interest rates rise in over six years would be made clearer towards the end of the year and with this Thursday’s meeting one of the last chances to offer such guidance this year investors will be closely watching economic indicators and data releases in the run up. The pound sterling managed to rebound 0.7% on Friday, building on the previous session’s modest gains on a bout of short covering as well as expectations of renewed hawkishness from the Bank of England this week. The pound managed to breach near term resistance at both the 200 day and 40 day moving average as it targeted an intraday high of 1.5468 before eventually ending the session at 1.5428. Activity early on this morning has seen sterling open around Friday’s highs but pull back towards Friday’s close early on ahead of the European open.

The Turkish lira experienced considerable strength against the USD during early trade on Monday morning after a surprise win for the AK party. Incumbent President, Recep Erdogan displayed a triumphant return to power after slipping in the polls five months ago as his party secured 49% of the vote, registering a clear majority in parliament. The lira strengthened as much as 5.3% against the dollar from Friday’s close as the currency traded towards a three month high against the USD around 2.7579 but has since given back some of these early gains, trading 3.4% higher towards 2.8136 at the time of writing.

China’s manufacturing PMI reading for October released over the weekend offered little encouragement for investors who had hoped that activity in the world’s second largest economy had finally bottomed out and reached a floor. The official reading held firm month-on-month at 49.8, slightly below the 50.00 reading expected by market participants. However, the Caixin manufacturing PMI reading released in the early hours of Monday morning offered some hopes of a slow recovery with their reading improving from 47.2 in September to 48.3 in October. Nonetheless, the data suggests that policymakers in Beijing still face considerable headwinds as they transition to a more balance economy and could predicate further easing from the PBOC.  

GBP rebounds against USD on Friday

GBP Curncy British Pound Spot 2015 11 02 08 09 23

TRY gains considerable ground against USD on AK party victory

TRY Curncy Turkish Lira Spot 2015 11 02 08 15 08

Caixin manufacturing PMI rebounds but still below 50.0

MPMICNMA Index Caixin China Man 2015 11 02 08 34 08

Events for today

0200

CN

Oct

Manufacturing PMI (01/11/15)

0200

CN

Oct

Non-Manufacturing PMI (01/11/15)

0200

CN

Oct

Caixin Manufacturing PMI

0855

DE

Oct

Markit Manufacturing PMI

0900

EZ

Oct

Markit Manufacturing PMI

0930

UK

Oct

Markit/CIPS Manufacturing

1445

US

Oct

Markit Manufacturing PMI

1500

US

Oct

ISM Manufacturing

1500

US

Sep

Construction Spending

Topics: PMI, BoE, GBP, PBOC, TRY
More from: Kash Kamal