November 03, 2022

Daily Report 03/11/2022

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Sterling was unable to make any headway into Wednesday’s Federal Reserve decision with a retreat against the dollar. Weaker equities and a firm dollar curbed potential support for the UK currency and there were also expectations that the Bank of England would adopt a relatively dovish stance at Thursday’s policy meeting. Sterling briefly strengthened to highs after the Federal Reserve policy decision before surrendering gains quickly as the dollar rebounded. As the dollar rebound gathered pace and equities moved sharply lower, Sterling retreated sharply against the dollar. Consensus forecasts are for the Bank of England to increase rates by a further 75 basis points to 3.00% at Thursday’s meeting with guidance from the bank watched closely. The bank is likely to point out that there is major uncertainty over the outlook for the economy and inflation.

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12:00 Bank of England Minutes
12:00 Bank of England Interest Rate Decision  Forecast 3%     Previous 2.25%
12.30 BoE’s Governor Bailey speech

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The final reading for the Euro-zone manufacturing index was revised slightly lower to 46.4 from the flash reading of 46.6 with notable weakness in the Spanish data for the month while the German economy remained firmly in contraction territory. German unemployment increased 8,000 for October after a 13,000 increase the previous month and a slightly smaller increase than expected. The Euro posted limited gains in early Europe before fading into the Fed policy decision.

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The Federal Reserve increased interest rates by 75 basis points at the latest policy meeting to 4.00% which was in line with consensus forecasts and there was a unanimous vote for the decision. According to the statement, recent indicators point to modest growth in spending and production. It added that the Fed is highly attentive to inflation risks and it expects that further rate hikes will be needed. Chair Powell retreated that a restrictive policy stance will most likely be needed for some time as demand far outstrips supply and the labour market remains unbalanced. He again warned over against premature easing and that the terminal rate needs to be sufficiently restrictive which is a key question right now.

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