Market Update

November has opened trading with the GBP having retraced gains from an incredibly strong month. Investors and traders priced in an interest rate hike from the Bank of England this side of the new year in the last 2 weeks of trading. The GBP had reached highs against the US Dollar, Euro and a basket of other currencies. Although an interest rate hike is not yet completely confirmed; this weeks focus and attention will be on Bank of England interest rate decision on Thursday 4th November. With inflation rising above the bank of England’s target of 2%, a hike would curb inflation. However, is the UK ready to raise interest rates as we approach the winter season and uncertainties surrounding Covid-19?

Should the nine members of the Monetary Policy Committee (MPC) vote unanimously for an interest rate hike; we should in theory see the GBP continue its strong run against the US Dollar, Euro and other currencies. In the scenario where members of the MPC vote against an interest rate hike this month, we can expect the Pound to further retrace gains made in the last couple of weeks of October. Whether or not and interest hike does prevail this month; comments made by the Bank of England and MPC in the Meeting Minutes will be closely watched and any forward guidance or indications will fuel investors and traders appetite for November trading.

Across the Pond, the United States also have their interest rate decision on Wednesday and, unlike the UK, the US are not forecasting any rate hikes. The markets will be keeping a close eye on the decision and more so if the US decide to being tapering. Thus far, rising inflation in the US is being looked at as transitory and therefore no urgent stance to raise interest rates. If the US do decide to taper and reduce its asset purchasing, we could well see the US Dollar strengthen. No changes to asset purchasing could keep the US Dollar stable with attention turning towards the Meeting Minutes.

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