Bank of England takes centre stage

Yesterday's currency recap

GBP traded sideways yesterday, ahead of today's Bank of England MPC interest rate meeting. Expectations are for the bank to leave interest rates unchanged at 4.0% but this Is far from certain with markets pricing-in a 35% probability of a cut to 3.75%. Traders will be closely monitoring the vote count and new growth and inflation forecasts for clues as to the bank's future monetary policy path.

Stronger-than-expected headline final services PMI data helped steady sterling, with input price inflation registering an 11-month low.

Given that the current US government shutdown is preventing the release of key official economic data, markets are heavily reliant on private economic reports for forward guidance. The ADP private payroll report released yesterday came in stronger than expected with 42k jobs added for the month of October, versus expectations of 28k. US Services PMI also came in above forecasts bucking the recent trend of weaker economic data and pushing US bond yields up to one-month highs. Late in the session, Trump gave a bullish outlook on the US economy, saying he expects "US Q3 GDP growth of 4.2% or more".

Today's GBP rates

Key data points

Today's speeches

• ECB’s Schnabel, De Guindos, Nagel and Lane
• BoE’s Bailey
• Fed’s Williams, Barr, Hammack, Waller, Paulson, Musalem

What we think

Today's BoE UK interest decision and economic forecasts could well go a long way to determine sterling's short-to-medium term direction. Whilst rates are expected to be left unchanged, voting by the 9 committee members is forecast to be split 6-3 in favour of standing pat.

For most of this year the GBP had been supported by its attractive yield; however, recent weaker economic data, coupled with government debt worries, have weakened sterling and bond yields. This has left the currency vulnerable to further downside moves if interest rates were to be cut, and/or if previous growth and inflation forecasts were to receive downward economic revisions.

Read more about the BoE's interest rate meeting here - When is the next BoE interest rate decision?

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