Sterling may struggle to maintain gains in the short term

Yesterday the Bank of England unsurprisingly left interest rates on hold as they voted 8-1 to leave policy unchanged. The only dissenter was Ian McCafferty who asserted that a likely rise in inflation justifies an immediate increase in interest rates. The committee acknowledged the slowdown in China and increased geo political tensions however they were not overly concerned and overall they expect the pick-up in inflation to rise only gradually. It is now apparent that rates will remain lower for longer and interest rate markets are beginning to price that in, with most not expecting a rise until well into the second half of next year. Sterling may struggle to maintain gains in the short term.

Overnight the FOMC minutes were released and they pretty much echoed the dovish tone that was apparent in the Statement after the meeting on September 17th. The price action would suggest that markets were anticipating a more hawkish message particularly after the recent comments from Fed members. The minutes focussed on concerns about low inflation due to dollar strength and global risks. The dollar has struggled to make gains after last week's poor non-farm payroll number and in a day devoid of meaningful data that trend is likely to continue. Commodity currencies have been the main beneficiary as risk is being put back on the table.

As mentioned the data calendar for today is pretty sparse with only the UK trade balance this morning and Canadian unemployment data due later this afternoon. We do get to hear from a couple of Fed speakers that have not spoken since the jobs data was released last week. In light of the change in sentiment these will be scrutinised quite closely. Atlanta President Lockhart is due to talk at 13.00 and Chicago President Evans just after the UK close.