The US Dollar and Japanese Yen outperformed in overnight trade, rising against their major counterparts as markets corrected following a recovery in risk appetite that weighed on the two go-to safe havens over the preceding 24 hours. Traders in the FX space largely ignored a substantial advance across Asian bourses, with the rally dismissed as a catch-up move to the gains seen earlier on Wall Street rather than a response to anything materially new in the financial landscape.
The British Pound was uniformly sold against the majors ahead of the upcoming Bank of England monetary policy announcement, with a dovish set of minutes from last month’s sit-down stoking expectations that the bank is preparing to reboot its quantitative easing program. With that in mind, the rate-setting MPC committee has previously waited for the publication of an updated quarterly Inflation Report to make major changes in the policy mix, meaning they may wait until November to pull the trigger.
Needless to say, the European Central Bank interest rate decision is the other headline announcement on the docket, with traders looking for Jean-Claude Trichet and company to step in with additional support as EU politicians continue to wrangle over ways to rebuild confidence with seemingly nothing tangible besides empty rhetoric emerging so far. The markets are pricing in a 55.8 percent probability of a 25bps interest rate cut according to data compiled by Credit Suisse. The reintroduction of 6- and/or 12-month long-term repo operations (LTRO) to feed liquidity into the banking system is also a possibility. Read More
