FX round-up: BoE moves to raise rates, greenback weakens on tax plan

Digital Look WebFG News | 02 Nov, 2017 17:25 - Updated: 17:25 | | |

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The Bank of England (BoE) raised interest rates on Thursday for the first time in more than 10 years from 0.25% to 0.5%.

The vote to raise rates came in at 7-2, with Monetary Policy Committee (MPC) members Jon Cunliffe and Dave Ramsden dissenting.

BoE Governor Mark Carney hinted at a possible rate rise back in September and the market seems to have been pricing it in since. As a result, once the confirmation came through, a sharp sell off was seen on cable, which seems to have been a classic "buy the rumour, sell the fact" scenario, as well as long positions closing out.

Sterling traded 1.42% lower against the dollar by 1700 BST to 1.3062.

"We're going to be in exceptional circumstances for a period of time, certainly until there's clear resolution of the future relationship (with the EU), and even then, maybe longer than that," Carney told reporters.

Carney also stated that any further increases would be "very gradual" as Britain prepares to leave the EU. This somewhat dovish tone also weighed on sterling in the wake of the rate rise.

"Brexit negotiations will determine much of the fate of the economy and the pound, and he has little scope to control either over the next twelve months," said BlackRock's Ben Edwards.

Across the pond in the US, Republicans outlined a $1.51 trillion plan to cut taxes for corporations and some middle class families.

Overall the greenback did not react well to the proposed cuts, with the dollar trading 0.20% lower against a basket of currencies to 94.625.

Little relief came in the form of a better than expected unemployment claims figure with a print of 229,000.

Later tonight (1900 BST) President Trump is expected to name Jerome Powell as the next head of the Federal Reserve, concluding a month long process in which he considered 5 potentials.

Looking ahead for the rest of the week, all eyes will turn to Friday's non-farm payroll figure to gauge some direction for the US labour market.

Over in Europe, figures out on Thursday morning showed that manufacturing expanded more than expected in Spain, Italy and Germany with PMI readings of 55.8, 57.8 and 60.6 respectively.

These figures went some way to help bolster the single currency in the morning and the momentum carried on till the late afternoon, with a little help from a weaker dollar, with EUR/USD trading 0.43% firmer to 1.1673.

Against the pound, the euro soared with GBP/EUR trading 1.78% lower to 1.1197, thanks mostly to the heavy sterling sell off.

Over in Asia, the Japanese yen managed to gain some ground against it's US counterpart with USD/JPY trading 0.1% lower to 114.02.

Japanese Finance Minister Taro Aso hailed on Thursday the achievements of central bank governor Haruhiko Kuroda, noting that the yen's overall weakening as a result of monetary easing has helped boost exports and employment.

"Coordination between fiscal and monetary policies has worked well," Aso told reporters after a cabinet meeting when asked his view on the central bank governor, whose five-year term ends in April.

The Cabinet Office released the consumer confidence figure showing an uptick to 44.5, beating expectations on 43.6.

"Considering upbeat business sentiment, we expect firms' capital investment will stay firm in the second half of this fiscal year," said Yuichiro Nagai, economist at Barclays Securities Japan.

The Australian dollar was helped higher by a better than expected trade balance figure of AUD1.75 billion as well as an expectation beating buildings approval figure of 1.5%.

This helped AUD/USD move 0.51% higher on the day to 0.7716, helping it up from the lows in the 0.7662 area, where it has been floating for the last 6 days.

In a note to clients, analysts at NAB said, "Our model of the economy calls for a 0.9 percent rise in GDP for Q3, taking annual growth up from 1.8 percent to 3.2 percent."

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