Sterling bulls focus on GDP

This morning, UK GDP was released and as expected there was no revision to the preliminary reading of 0.8%q/q growth. The pound rallied on the back of this and sent cable shooting through 1.63. Similarly, the GBPEUR rate rose and is now fluctuating around the 1.20 level. Preliminary Business Investment figures were also released this morning and after falling 2.7%, business investment rose by 1.4%q/q below the expected figure of 2.3%q/q growth.

What is particularly interesting is that the market’s focus was on the GDP figure and the fact that business investment was below expectations meant little. In the opening remarks of the Inflation Report Press conference, Governor Carney emphasized the issue of absorbing slack in the economy, and stated that a strong and sustained recovery is needed in order to achieve this. Carney also stated that “A sustained recovery requires a revival of business investment”. Baring this in mind, it seems strange that the market’s attention is not being put on the fact that business investment growth is still slacking. The need for more robust growth has come from the horse’s mouth, yet the market feels the need to focus on a GDP reading that only confirmed what we had already known.

It is fair to acknowledge the rise in business investment and consider it positive, but surely the market needs to draw their attention towards the need for this type of investment to gain traction. A lot of sterling’s recent strength has been on the back of the possibility of a rate increase in 2015. We also know from the inflation report that we could have a situation where unemployment has reached the 7% benchmark, but the BoE maintains loose monetary policy. If the sterling bulls want to see a rate increase by 2015, they may want to pay a little more attention on the progression of factors such as business investment, which may help to gauge how sustainable the recovery is and therefore when the BoE will be likely to raise rates.

Sasha Nugent

Currency Analyst

Caxton FX 

Caxton FX Weekly Report: Talks of looser monetary policy from the ECB keep the euro on the back foot

Super Sterling Returns

Despite a light calendar, it was an impressive performance for sterling last week as CBI Industrial Order Expectations smashed estimates and drove both the GBP/EUR and GBP/USD rates higher. Levels remain elevated and there is still a chance there are some bullish sterling investors waiting for the moment to push the rate further. The main release this week will be the second GDP estimate, and any upside surprise here will most likely trigger some more sterling momentum.

On Tuesday, The BoE governor and the monetary policy committee will appear before the Parliament’s Treasury Committee to discuss the central bank’s latest inflation report. This will present an opportunity for the market to move on the MPC’s comments, especially if they reveal more about the future of interest rates. Sterling should be well supported this week but it is unlikely the big moves will come from the British side of things.

Eurozone inflation figures on watch

Last week it was revealed that the ECB monetary policy committee had discussed negative deposit rates. Although President Draghi has managed to calm the markets, it may not take much to get the topic brewing again. The key release will be the eurozone inflation figure which is expected to rise to 0.8% y/y. If the actual figure comes out significantly higher than expected, we expect more of the euro bulls to come out of the woodwork and it would be another move lower for GBP/EUR. Despite the fact that the ECB expect inflation to remain low for a prolonged period, a lower CPI reading could easily reignite talk about the possibility of negative deposit rates. This morning, there have also been comments from ECB member Hansson claiming there is room for the ECB to cut rates further. There has been some slight euro weakness on the back of these words however the market seems to have adjusted to the prospect of lower interest rates.

Eurozone figures such as GFK German Consumer Climate and German unemployment change could provide some support the euro. Last week we witnessed strong German Ifo Business Climate figures drive the GBP/EUR rate towards 1.1950 and push EUR/USD through 1.35. The same can happen again this week provided these numbers beat estimates.

The market eyeballs US data

After showing some signs of recovery, the disappointing Philly Fed manufacturing Index has placed the dollar on the back foot once again. The positive flash manufacturing PMI and unemployment claims figures were not enough to limit dollar losses, and this suggests that US data is being watched even more closely after the last FOMC minutes. With the window slightly open for a December taper, economic figures from the US need impress in order for significant repositioning to take place, and increase demand for the dollar.

First up we have pending home sales due this afternoon, and this figure could get the ball rolling for a better week for the greenback. Building permits, CB consumer confidence, Core Durable Goods orders and unemployment claims are all due this week and will receive attention from the market. With the non-farm payrolls figure due next Friday, an extremely strong unemployment claims figure should help get some dollar optimism stirring ahead of the employment report next week.

End of week forecast

GBP / EUR	1.1950
GBP / USD	1.6140
EUR / USD	1.3450
GBP / AUD	1.7720

Sasha Nugent

Currency Analyst

Caxton FX

RBA Governor Stevens takes the first steps in weakening the Aussie

After months of complaining about an “uncomfortably” high Australian dollar, RBA Governor Stevens has finally said enough to ease Aussie momentum.

The RBA’s latest monetary policy minutes, revealed that although the effects of the last rate cut are still filtering through the economy, the committee haven’t closed the door on lowering rates further. The central bank has raised the issue of a persistently strong Aussie and the potential problems this can cause for the recovery. Consequently, there have been several attempts to talk down the AUD, but this has failed to make any lasting impact. The prospect of looser monetary policy has not shaken the markets enough to encourage significant Aussie weakness.

This morning, RBA Governor Stevens claimed that he is ‘open minded on intervention to lower AUD’ and this comment got the ball rolling. GBPAUD opened at 1.7253 and has jumped over two cents to 1.7470 during trading today. The fact that Governor Stevens is ‘open’ to intervention suggests the RBA are serious about the currency’s strength, and could act to weaken the Australian dollar if need be.

Sasha Nugent

Currency Analyst

Caxton FX

More euro optimism anyone?

Even after the ECB cut rates a couple of weeks ago, there still seems to be some investors that are willing to put their money in to euros. The single currency has recovered from losses quite well recently, and even had sterling struggling to remain above 1.19 in the last session. Nothing has been particularly encouraging from the eurozone, and yet sterling has found maintaining 1.19 just as difficult as breaching and sustaining 1.20.

And then we get another reason to sell euros. Negative deposit rates!

Following the ECB’s surprise move to cut the interest rate to 0.25%, Bloomberg reported that the ECB is also considering a negative deposit rate. This spurred an unwind of euro long positions and sent the GBPEUR rate back to 1.20, while slamming the EURUSD rate below 1.35 once again. Evidence for short euro positions is building, especially against sterling where UK fundamentals are more impressive. Having said that, every time we believe it is time for the euro to continue to weaken, it finds some hidden strength and proves us all wrong. It may take more than negative deposit rates ensure the GBPEUR rate remains above 1.20.

Sasha Nugent

Currency Analyst

Caxton FX

Caxton FX Weekly Report: Sterling takes a back seat after the BoE Inflation Report

Anything more from the BoE?
The BoE Inflation Report was released last week, and although the central bank is not in any rush to raise rates, the report displayed some optimism about the UK outlook. The Bank of England revised their UK growth forecast upwards, and their inflation projections downwards (under the assumption the Bank rate follows the market rate). What the currency market particularly focussed on, was the prospect of a rate increase in late 2015. With the labour market improving faster than expected, the BoE now forecasts the
unemployment rate will reach 7% quicker than the time frame given in the August Inflation Report.

This week, the main UK release will be the Bank of England monetary policy minutes and we doubt the language in the minutes will differ much from what we saw in the Inflation Report. Although the minutes are likely to highlight the improvement in the labour market, we may see some emphasis on the headwinds the UK economy still faces. A generally light calendar for sterling leaves it open for weakness and this could allow the dollar and euro to potentially drive GBP/EUR and GBP/USD lower.

What can the euro do to regain momentum?
The euro remained on the back foot for most of last week, especially against sterling. The BoE inflation report spurred demand for the pound and drove the GBPEUR rate above 1.19. The prospect of a rate hike from the BoE in 2015 is directing this rate upwards, and in order for the euro to regain control (at least in the short term), this week’s PMI figures need to provide some upside surprise. Last week we saw evidence of a slowing Eurozone economy and so any data that suggests a pickup in economic activity should put the euro in a better position against both sterling and the dollar. With a heavy calendar ahead for the US, it will be more difficult for the euro to push EUR/USD higher. There are still some bullish euro investors around, and it is more likely that the single currency will do better against sterling than the dollar.

Will we see more evidence in favour for Dec tapering this week?
Last week the Senate Banking Committee hearing for Fed Chair nominee Janet Yellen was the main topic surrounding the dollar. Despite some dovish comments, Yellen recognised the fact that the US economy is making progress and that QE could not continue indefinitely. These remarks helped limit dollar weakness and allowed cable to trade around levels seen earlier on in the day. The dollar however, finished the week on a bad note after Empire state Manufacturing Index came in below expectations. In the busy week ahead, there is plenty of opportunity for the dollar to pare back losses and build evidence to support the Fed’s tapering case. The FOMC meeting minutes will be released and this gives the market yet another insight on the Fed’s take on the US economy. More importantly, there could also be an indication of the likely timing of tapering, which will allow investors to begin to reposition their portfolios.

End of week forecast

GBP / EUR	1.1880
GBP / USD	1.6100
EUR / USD	1.3500
GBP / AUD	1.7110

Sasha Nugent

Currency Analyst

Caxton FX

What is new in the BoE November Inflation Report?

One of the most important things to take from the inflation report is the more positive view on the economy. In Governor Carney’s words, “For the first time in a long time, you don’t have to be an optimist to see the glass as half full. The recovery has taken hold”. Strong economic figures, particularly robust PMI numbers, have encouraged a brighter outlook for UK growth in 2013 and 2014. Consequently, the central bank has raised their forecasts for growth from 1.4% to 1.6% in 2013 and from 2.5% to 2.8% in 2014.

After CPI surprisingly dropped to 2.2%y/y, the BoE now projects inflation will be considerably lower than predicted in August. Although energy price rises are likely to result in an uptick in inflation in the coming months, weak domestic price pressure and the recent strengthening of sterling will keep the inflation rate trending towards the 2%y/y target. Assuming the Bank Rate follows the path of market yields, the inflation target will be reached a year earlier.

The central bank’s outlook for the labour market has also improved and the monetary policy committee now believe that there is a two in five chance that unemployment will reach 7% by the end of next year, and a three in five chance in 2015 (assuming the Bank Rate follows market rates). Considering the MPC have used the unemployment rate as a benchmark to re-evaluate monetary policy, there is a possibility that we could see a rate hike in late 2015. However, Governor Carney repeatedly highlighted the importance of reducing slack, claiming “A strong and sustained recovery is needed to put people back in work and use up the slack in the economy”. Therefore the MPC may hold back on raising interest rates until we witness such a “strong economy”. In addition, Carney outlined that a scenario where the Bank Rate was held constant “shows the potential advantages of keeping rates unchanged after hitting 7% unemployment”.

The main thing to remember is that despite the upward revision in growth projections, and confirmation that the recovery is strengthening, it doesn’t necessarily mean a rate hike is on its way. Although the unemployment rate is expected to reach the threshold earlier than predicted in the last inflation report, in Governor Carney’s words, “what really matters is what we will learn about the economy along the journey to that threshold”. We have seen how quickly the economic picture can change, and therefore it is important for focus to remain on what this picture is showing.

Sasha Nugent

Currency Analyst

Caxton FX

The BoE may be able to keep rates low after all

Today’s inflation figure shocked the market, and has further dampened expectations that the Bank of England may need to raise rates sooner than outlined in forward guidance. CPI came in at 2.2%y/y, the lowest level since September 2012, with the deceleration attributable to lower transport costs and education costs. The pound took a beating post release with GBPUSD dropping to 1.5850 and GBPEUR dipping below 1.1850.

The central bank will publish their updated economic forecasts tomorrow, and in the light of today’s inflation reading, we could see inflation projections revised downwards. In forward guidance, the BoE committed to keeping rates low at least until unemployment was below the 7% threshold, despite above target inflation. With price pressures easing, and the economy improving, there no immediate need to raise rates, and the central bank now has more room to keep policy loose in order to continue to support the recovery.

The market had previously questioned whether the BoE will be able to keep rates low, but with inflation now at 2.2%y/y, pressure on the central bank has eased. What needs to be highlighted is that once energy prices take effect, the decline in the inflation rate is likely to be reversed and the road to achieving price stability will be more difficult.

Sasha Nugent

Currency Analyst

Caxton FX

Caxton FX Weekly Report: Will the BoE raise their UK growth projections?

Give and Take
Sterling had a good week last week as PMI figures gave the pound a solid footing to gain against its major currency pairs. Services PMI rose at the fastest pace in 16 years allowing sterling to direct the GBP/EUR rate higher. Industrial production figures also provided upside surprise and with a little help from the ECB, the GBP/EUR rate managed to breach 1.20. This week there is plenty of opportunity to see the pound build on current levels. UK inflation data is released and figures are expected to show inflation slowed for another month to 2.5%y/y. Unemployment data is also due and a continued improvement in claimant count numbers should encourage a stronger pound. The BoE will release its inflation report and this will be the main event for sterling. Optimism about the UK outlook has continued to increase and after the latest PMI numbers, we could see the Bank of England raise its projections for UK growth. More positive language from the central bank should be welcomed by the market, and we could see another push for 1.20 in the days ahead.

More euro weakness to come
The euro has already experienced some significant weakness after the ECB unexpectedly cut rates to 0.25%. Despite the large movements, we could see more weakness this week depending on the outcome of Eurozone GDP readings. Any downside surprise in these figures could possibly encourage more euro selling, and provide further justification for the ECB’s rate cut. Significant releases from the UK should also support a move to drive GBP/EUR higher, especially if the BoE raise their forecasts for UK growth. The euro has managed to reverse some losses so far today, with the EUR/USD rate climbing towards 1.34 once again, and GBP/EUR declining towards 1.19, but it is unlikely that this can be maintained in the days to come. With the window for a December taper ajar, the euro also remains vulnerable against the dollar.

Non- farm payrolls puts greenback back in the race
Non-farm payrolls came in significantly above expectations, and this has prompted some increased demand for the dollar. The figure highlighted that despite the deceleration in payrolls, the labour market is still in decent condition. Although this figure alone isn’t enough to warrant a December taper, it does open the door to the possibility which should be enough to keep the dollar in better condition going forward. Economic releases this week should also support a firmer dollar and encourage some optimism about the US economy.

On Thursday, Janet Yellen will face the Senate Banking Committee for a grilling before deciding whether to send her nomination for full Senate approval. While Yellen only needs a handful of votes from Republicans in order to pass necessary procedures when her nomination reaches the Senate, Republicans will not hesitate to scrutinise a policy which they feel is building up future inflationary pressures.

End of week forecast

GBP / EUR	1.1980
GBP / USD	1.5950
EUR / USD	1.3350
GBP / AUD	1.7100

Sasha Nugent

Currency Analyst

Caxton FX

Non-farm payrolls revives the tapering debate

The dollar experienced another boost of momentum today after non-farm payrolls beat estimates adding 204k workers vs 120k . The release highlighted that the Federal shutdown hardly had an effect on employment, and suggested that maybe the labour market is healthier than previously thought. This is likely to reignite the tapering debate. The shutdown as well as some less impressive figures from the US, dampened expectations that the Fed will begin tapering in December, and many market participants believed it was more likely to begin in the New Year. These figures have reopened the possibility of a December taper, and this should result in a firmer dollar in the weeks ahead.

Sasha Nugent
Currency Analyst
Caxton FX

Inflation figures give ECB a wakeup call

After weeks of bullish investors supporting a strong euro, the single currency has had the rug pulled from under its feet as the ECB cuts its main refinancing rate by 25bps to 0.25%. Ever since last week’s inflation figures showed inflation slowed to 0.7%y/y, there has been increasing pressure for the ECB to act against disinflationary pressures. Today was that day and inflation data was enough to tip the ECB over the edge.

A strong euro has also been an issue for discussion of late, and the decision to cut rates has forced GBPEUR to rally through 1.20 although the rate has now stabilised around 1.1990. EURUSD also took a sharp hit and is now below 1.34. Considering the ECB had no intentions to weaken the euro, it could be said that they have killed two birds with one stone.

Although the market continued to highlight the potential risk of deflation, ECB President Draghi said that despite the expectation of prolonged low inflation, medium to long-term projections are still anchored in positive territory. This suggests that there may not be a need for further cuts in the future and even if there is, the ECB has said there are still a number of tools at its disposal.

Sasha Nugent

Currency Analyst

Caxton FX

UK Services PMI delivers the goods but for how long?

Over the past last few sessions, sterling has been struggling to maintain gains against the euro. Positive economic figures from the UK have done little to push the GBPEUR rate significantly higher, and even a solid construction PMI figure couldn’t do enough to force GBPEUR beyond recent levels. Yesterday the service PMI reading increased to 62.5 and showed the service sector grew at the fastest pace in 16 years, while new orders was at its strongest level since records began. This allowed sterling to finally return to the driving seat, with the GBPEUR rate shooting through 1.19.

In order to see more substantial moves, and to ensure sterling holds up against the euro, UK data needs to provide stellar results. With the picture brightening over the past few months, evidence suggesting the recovery is building momentum has grown and optimism about the UK outlook has increased. Today we have seen solid numbers from UK manufacturing and industrial production, and mixed results from the eurozone such as falling retail sales, and rising German factory orders. Initially the GBPEUR rate rose after the release of UK data, however German factory orders were enough to erase sterling gains and send the rate below 1.19 again. This shows that UK releases that are in line, or marginally above expectations are unlikely to produce enough momentum to keep sterling competitive against the euro.

While the pressure on the euro is helping sterling to direct GBPEUR higher, a more hawkish shift from the central bank will do more to ensure an upward trend in GBPEUR. The market is already predicting the central bank may raise rates earlier than outlined in forward guidance, but for now an increase in the BoE’s economic projections released next week should be welcomed by the market. This may provide GBPEUR with more sustainable support, helping to drive the rate higher in the near term.

Sasha Nugent

Currency Analyst

Caxton FX

Caxton FX Weekly Report: Euro takes a back seat as inflation puts pressure on ECB

Can sterling remain above 1.18?
The eurozone inflation and unemployment data allowed GBPEUR to recover from levels below 1.17, to start the week above 1.18. Today, UK construction PMI beat estimates, and this has seen a slightly revival in the GBPEUR rate. Last week we saw a solid manufacturing number do little for the pound suggesting investors need more solid excuses to sell euros to see sterling really get back in its stride. The Bank of England will announce their rate decision on Thursday, and with monetary policy expected to remain on hold it is unlikely this will do much for the pound. There is plenty of downside risk against the dollar, and with fresh optimism brewing, it is possible GBP/USD could continue to trend downwards.

It’s time to let the euro take a back seat
After sessions of pushing the GBPEUR rate gradually lower, euro strength has eased, and it is now much more vulnerable that we have seen in recent weeks. The ECB rate announcement and press conference will be the key. The poor inflation figures released last week, has fuelled speculation that a rate cut may be needed in order to curb the eurozone’s problem of slowing inflation. If the ECB decide to hold rates, focus will then be on whether the central bank sees rate cuts in the future, and if not, what other tools are available. European Banks are falling short of excess liquidity and with time running out, the market will also be looking for an indication of whether these banks will be supported through another round of LTROs. For the first time in a while the euro will on the back foot, and this presents the opportunity for both sterling and dollar to dictate the direction of the GBPEUR and GBPUSD rates.

Renewed optimism supports a firmer dollar
Decent economic figures coupled with a less dovish central bank have helped the dollar start this week in better position. Whether greenback will be able to maintain these gains is largely dependent on data releases this week. Non-farm payroll is due on Friday, and economists expect this reading to show employers hired less workers before the shutdown. If this proves to be true, we may see a reversal in some of the dollar’s recent momentum as figures suggest that the pace of hiring continues to slow. After the central bank highlighted the need for more evidence to support tapering, a weak employment report even before the shutdown would rather encourage the central bank to take a slightly more dovish stance. The advanced GDP q/q reading will also be of interest, and a stronger figure here should be welcomed by the market. A dovish ECB may be enough to keep the dollar in control of EUR/USD, especially if the ECB hints that a rate cut is on the table. However, to maintain gains against sterling will be more difficult, and other economic figures such as ISM manufacturing and unemployment claims are needed to support downward movement in GBP/USD.

End of week forecast

GBP / EUR	1.1850
GBP / USD	1.5940
EUR / USD	1.3480
GBP / AUD	1.6820

Sasha Nugent

Currency Analyst

Caxton FX

November 2013 Monthly Report: US dollar stages a comeback

Sterling has remained on the sidelines for the majority of October. With some economic figures coming in below estimates, investors have adjusted their expectations accordingly, encouraging them to unwind sterling long positions. The pound is likely to remain on the back foot this month and we doubt economic figures can provide enough surprise to lure investors back into sterling. However, the latest Bank of England monetary policy minutes revealed a less dovish tone from the central bank, and if this continues, could help sterling resist a buoyant euro.

The market has been taking every opportunity to support a stronger euro, and despite some weak economic data, the single currency doesn’t seem to have run out of steam just yet. Even though the ECB outlined the importance of the exchange rate to the recovery, members haven’t displayed much concern towards euro strength. As excess liquidity in the eurozone declines, attention turns to the policy tools the central bank will use in order to support European banks.
Dollar weakness has continued into the new month despite managing to pare back some losses against both sterling and the euro. The US government standoff gave investors an excuse to sell dollars after the Federal Reserve kept monetary Policy unchanged in September. We should see the dollar begin to get back on its feet this month, as clearer data allows investors to get a better picture of the likely timing of tapering.

Not looking great for sterling in the month ahead 
It seems like the period of sterling superiority has faded, and now it is time for sterling strength to take a back seat. The market now views previous sterling strength as excessive, and with last month producing softer economic data, investors have been encouraged to reduce sterling holdings. Nevertheless the outlook on the UK economy hasn’t changed. Optimism regarding the UK recovery remains and strategists have begun to raise their forecasts for GBP/EUR. We expect solid data figures to continue in November, however in order to witness some significant sterling momentum, economic data will have to provide some significant upside surprise.
Last month we saw a slight shift in the Bank of England’s stance, and although there were no policy adjustments the central bank highlighted that unemployment has improved marginally faster than forecasted. The monetary policy minutes from the last meeting noted that it was now possible that unemployment will be lower, and growth faster in the second half of the year, than predicted at the time of the August Inflation Report. This less dovish language may be what is needed to keep sterling competitive especially against the euro this month. If the central bank continues to display a more positive tone about the UK economy (especially unemployment), it could reignite speculation about when the BoE will consider raising rates. Next week the BoE’s monetary policy committee will meet and it is unlikely that we will see any change in policy. Eyes will then await the release of the monetary policy minutes to identify whether this rhetoric has continued into November.

GBP/EUR

Euro domination
There has been a big shift in momentum in the last month, and the demand we had seen for sterling has now moved to the euro. Euro strength has become a hot topic, and although the ECB have remained dovish, their lack of concern about euro momentum has given investors the green light to buy euros. In the press conference after the last ECB rate announcement, President Draghi highlighted the importance of the exchange rate to the eurozone recovery but didn’t signal any immediate concern about the single currency’s recent strength. It was only this week that ECB member Nowotny said he doesn’t see any tool the ECB could use against the strong euro, and it is something that we will just have to deal with. With comments like that it is no surprise investors are bullish on the euro, and this against bearish behaviour towards sterling set the tone last month. Investors have disregarded some more disappointing releases from the eurozone, and penalised sterling for some poor UK numbers. However, this week eurozone unemployment data was released and showed unemployment rose to 12.2% allowing sterling to rally through 1.17 and close at 1.18. Inflation is also becoming an increasing problem, and with CPI now at 0.7% y/y, the pressure is mounting for the ECB to take action, and possibly cut rates. This may be an indication that not everything can be ignored, and some euro weakness is in sight.

European banks are running out of excess capital and the ECB has said that there are a number of tools available in order to support banks, sparking talk of another round of LTROs. In an interview, governing council member Nowotny said that it is clear that there would be a liquidity provision but refrained from outlining what measures the ECB would use. As the month unfolds, there will be more focus on this, and if one is announced, it is likely to dampen recent euro strength and edge GBPEUR higher.

The ECB has scheduled a comprehensive assessment of 124 of the most significant Eurozone banks between November 2013 and October 2014. This includes a Supervisory risk assessment, asset quality review and stress test. It is possible that banks will begin to reduce the amount of foreign currency dominated assets held, to purchase euros in an effort to clean up their balance sheet. This could begin to influence the rate also.

GBP/USD

Is the storm over?
Neither currency in this pairing had it easy last month, however the problems just kept piling on for the dollar. After more than two weeks in partial shutdown, the US government managed to raise the debt ceiling in time to avoid default, but this was only raised till February 2014. Whilst this decision removed the immediate threat of default, it was by no means a solution, and this set the dollar up for weakness. The influence the shutdown had on the economy has also affected the Federal Reserve’s decision on whether to taper their asset purchases this year.

As we enter the new month the greenback is under a little less pressure than it was in October. This week the Federal Reserve kept interest rates and asset purchases on hold for another month, as expected. In the accompanying statement, the Fed seemed optimistic, but said more evidence is needed in order to pare back stimulus. The less dovish language provided the greenback with some momentum, edging the GBP/USD rate lower. Whether we can see this trend continue is dependent upon the performance of US figures. The shutdown has given the central bank more time to assess economic conditions, and as distorted data clears the way for more accurate releases, evidence should begin to build in favour of tapering.

The September employment report revealed 148k additional workers and a decline in the unemployment rate to 7.2%, the lowest level since November 2008. October’s payroll reading is expected to be show a modest increase, highlighting the slowing trend in payrolls. The market will pay particular attention to employment figures and any indication of an improving labour market will encourage more bullish behaviour, as well as increased speculation about the timing of tapering.

In the month ahead we feel the dollar will stabilise but will remain vulnerable to some weaker data releases. This may provide sterling with pockets of opportunity to push the GBPUSD rate higher but there is a fair possibility we could see this rate marginally trend downwards this month.

GBP/EUR: 1.1875
GBP/USD: 1.5920
EUR/USD: 1.3460

Sasha Nugent
Currency Analyst
Caxton FX