As expected, the U.K. inflation report has been the catalyst for the the big downward move in the British pound yesterday. The pound dropped like a stone and provided short-traders a nice profit. The Bank of England indicated it remains cautious about raising rates and lowered its growth and inflation forecasts. The MPC minutes showed that only one member voted for a rate hike this month, with the majority saying underlying price pressures were not strong enough to warrant a rate increase. Despite the dovish report, BoE governor Mark Carney signaled in a later interview that investors should be ready for tightening in 2016. “At some point, rates are going to move. It’s not today, unfortunately”, he said.
The euro took a breather and traded directionless sideways. Traders had to struggle with fake-outs, eliminating previous gains in the EUR/USD.
Today all eyes will be on the Non-Farm Payrolls report, scheduled for release at 13:30 GMT. The majority of economists expect payrolls to rise by a larger amount than the previous month. Investors are waiting for a confirmation of a healthy U.S. growth, justifying an imminent rate increase. Dollar bulls would get a strong signal when payrolls exceed 200k, average hourly earnings increase and the unemployment rate remains either steady or shows a decline. On the other side, if the market will be caught by surprise and labor market data disappoints, the USD could fall quickly and forcefully.
Before payrolls are due for release, U.K. data such as Manufacturing Production and Trade Balance (9:30 GMT) could impact on the pound sterling.
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