BoE to cut rates to 3.75% with vote expected to be 'another close one'

Matthew Ryan, CFA Ebury

This week is shaping up to be a critical one for the pound. The Bank of England meeting on Thursday will be preceded by the October labour market report on Tuesday, the December flash PMIs of business activity (also on Tuesday) and the November inflation report on Wednesday.

Expectations are for the same stagflationary combination that is making monetary policy unusually difficult, namely a labour market that continues to shed jobs and stubbornly high inflation significantly above the central bank's target.

We still expect another reduction to the base rate to 3.75% on Thursday, but it isn't clear when or even whether the Bank of England can continue its rate cutting cycle unless inflation starts trending decisively down.

The vote on rates this week is likely to be another close one, highlighting the growing disparity of views among committee members. We also expect Bailey and co. to reiterate that any future cuts will be “gradual and careful” and certainly not set in stone.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

AUD/USD remains below 0.7000 amid light trading

AUD/USD fills a modest bearish gap on Monday, but remains below 0.7000 in the Asian session amid holiday-thinned liquidity. The US Dollar attempts a bounce even as US bond yields pull back from multi-year highs, limiting the pair. Moreover, diminishing odds of another RBA rate hike in November cap the Aussie.

USD/JPY hovers above 158.00 amid Japan/ US holiday

USD/JPY extends its range-bound price action into a new week, trading above 158.00 as bulls remain on high alert amid speculation that authorities will step in to prop up the Japanese Yen. Meanwhile, softer US bond yields keep US Dollar bulls on the back foot and cap the pair's upside. However, geopolitical uncertainties could limit losses for the safe-haven buck amid thin liquidity due to a holiday in Japan and the US.

Gold remains vulnerable below $4,200 on Fed hike bets

Gold is under mild selling pressure on Monday, trading at around $4,170. The US Dollar advances modestly in thin trading, supported by bets that the Federal Reserve will hike rates at least one more time before year-end.

Bitcoin struggles as ETF outflows, geopolitical uncertainty weigh

Bitcoin hovers around $83,600 on Monday after a 3.1% correction last week. US-listed spot ETFs recorded an outflow of $681.10 million last week, snapping the three-week inflow streak. Geopolitical uncertainty and mixed signals keep investors cautious.

The week ahead: A critical week as earnings and CPI test market

The Oil price is relatively stable this morning, and US and European stock markets are poised to open higher, as risk sentiment shrugs off an escalation in the Middle East and concerns about rising bond yields.

Has Bitcoin really escaped the macro forces it was built to fight?

Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?