GBP Sinks As BOE Sounds The Alarm on The UK Economy

The British Pound has come back under heavy selling pressure on the back of the November BOE meeting yesterday. The BOE hiked rates by a further 75bps, as expected, while signalling that further hikes would likely be necessary as it continues to wrestle with inflation.

However, the meeting seemed to take a strange turn as BOE governor Bailey assured markets that rates would not go as high as the bank had previously projected, due mainly to how fragile the economy was. The BOE warned that the UK was likely at the start of a long recession and struck a very concerned tone – adding to the downside movement we’ve seen since in GBP.

Key Factors for Today

- USD rallies as Fed upgrades rates outlook, projecting higher peak
- Stock markets tumble as bond yields turn higher following Fed
- Risk FX lower amidst USD rally – safe havens rallying
- BOE to hike again today
- Oil and metals hurt by USD rally

Coming Up

- CAD Unemployment rate & Employment change
- USD Labour reports (NFP, average earnings, unemployment rate)
- CAD Ivey PMI

Stocks Reverse Yesterday’s Losses – NFP On Watch

Equities prices were seen lower across the board yesterday as USD pushed on higher. A strangely dovish meeting from the BOE dragged GBP, fuelling demand for the Dollar which weighed on equities. However, we are seeing a slightly better open today though with the US labour reports ahead we might see USD continue higher on any positive data, driving equities prices lower once more.

PayPal Tumbles on Weak Q4 Guidance

The big story in US earnings yesterday was the more than 5% drop in PayPal shares. The company posted strong Q3 earnings with an EPS of $1.08 vs $0.95 expected on revenues of $6.856 billion vs $6841 billion expected. However, it was weaker guidance for Q4 which saw the stock sink, with losses then exacerbated by the rally in USD.

AUD Rallies on RBA Inflation Warnings

In FX, a softer start for the US Dollar today has fuelled a sharp turnaround with AUD leading the pack as the strongest G10 performer on Friday. The RBA’s SoMP, released overnight, saw the bank forecasting continued rate hikes while inflation remains high. While the preference is for lower hikes, the RBA warned that it isn’t on a set path and will do what is necessary to curb inflation, responding to the path of inflation as needed.

GBP Under Pressure Following Gloomy BOE

GBP has been the weakest currency today with the pound left reeling on the back of a gloomy BOE meeting yesterday. With the BOE seen striking a highly concerned tone of the state of the UK economy, traders are fearful of the impact the upcoming UK budget will have on the economy given the spending cuts and tax hikes being touted by the government.

Metals & Oil Rally As USD Starts Weaker on Friday

In the metals and commodities space, both gold and silver have turned sharply higher today, benefiting from a weaker US Dollar. Gold prices continue to fight to get back off the current lows though risk a fresh breakdown if USD turns higher today on the incoming jobs data. Crude prices are trading higher today also with crude futures having broken out to fresh highs on the week earlier today. If USD weakness persists today, crude has room to advance further on the back of the bullish EIA report earlier in the week.