18/10/2017 - Pound Slides After Dovish BOE Comments

GBP

Britain’s pound slid to a five-day low after comments by Bank of England policymakers were interpreted by markets as dovish despite newly published inflation data in line with expectations. Members of the Bank of England’s interest rate-setting committee were speaking to parliament’s Treasury Committee. Silvana Tenreyro, external member of the Monetary Policy Committee, said the upward pressure on inflation from sterling weakness will start to wane in the coming months.

Theresa May will address her European Union peers on her strategy for Britain’s exit from the EU at a dinner in Brussels on Thursday, a senior EU official said.

The official, involved in the preparation of the EU summit on Thursday and Friday, also said that May’s Brexit speech in Florence earlier last month helped unblock stalled negotiations and allow for “good” progress. The progress so far, however, was not sufficient to start the next phase of negotiations on a transition period and a future relationship, the official said.

USD

The dollar rose to a one-week high against a basket of currencies on Tuesday on speculation that U.S. President Donald Trump was leaning towards nominating a Federal Reserve head who would be more inclined to raise interest rates at a faster pace.

The greenback was also supported by U.S. two-year Treasury yields hitting nine-year highs on Tuesday. Yields climbed as well on growing expectations that Trump favoured Stanford economist John Taylor to head the U.S. central bank.

Taylor is perceived as more hawkish than Ms. (Janet) Yellen so under his potential tutelage, the central bank might lift borrowing rates more aggressively. Trump’s shortlist also includes Jerome Powell, a Fed governor; Trump’s top economic adviser Gary Cohn; Yellen, whose term expires in February; and Kevin Warsh, a former Fed governor, sources have said, though investors say the chances of Warsh being selected have fallen.

Key Announcements

09.10 – EUR – ECB President Draghi Speaks; Due to deliver opening remarks at ECB conference

13.30 – USD – Building Permits; Forecast at 1.25M against a previous of 1.27M

15.30 – USD – Crude Oil Inventories; Forecast at -4.7M against a previous of -2.7M