Threadneedle Street in the spotlight!

GBP

After the Federal Reserve were slightly more hawkish than expected, attention now turns to the Bank of England and their monthly meeting this morning. The Bank will likely present an upbeat assessment of the economy, and it wouldn’t be a surprise if they curtailed the pace of their bond-buying programme. What is not so sure is how the Monetary Policy Committee (MPC) will vote over increasing interest rates.

With two new members joining the MPC, Huw Pill and Catherine Mann, it is more challenging than usual to call the outcome of the deliberations. At the last meeting, it was 7-1 to keep rates where they are, but after recent comments from Andrew Bailey, we expect a much closer vote this time. If the MPC is split on the decision, sterling will recover some lost ground, especially against the euro. Before any announcements from the Bank of England, Markit will release their September Purchasing Managers Indexes (PMI).

EUR

The euro was sold last night after the Federal Reserve’s hawkish announcement but has bounced off its lowest levels against the dollar this morning. Unsurprisingly, ahead of the Bank of England meeting this morning, GBPEUR is trading in a narrow range and will continue to do so as it awaits the outcome.

After several quiet days for data, today sees the release of Markit’s preliminary, or flash, PMIs for the Eurozone and its constituent countries. Of most interest will be Germany’s composite PMI which is forecast to have slightly increased.

USD

Overall, the Federal Reserve delivered a hawkish message to the markets after its two-day meeting concluded last night. The statement they issued acknowledged that progress is being made on employment, and if that continues, they will slow the pace of their asset purchases. If the upcoming payroll report is strong, released on October 8th, the market will expect a November announcement and tapering to start in December.

The “dot plot” also revealed that the Federal Open Market Committee is evenly split on whether rates will be raised next year. Initially, EURUSD was sold before bouncing back as traders took profits. However, the dollar should continue to gain ground against currencies with no apparent path towards tightening, such as the euro. As always, on Thursday, the US Labor Department will release its weekly Jobless Claims data, and later this afternoon, Markit will release its flash PMIs for the US