Market Review – Fundamental Perspective 2 November 2017

Most markets traded sideways yesterday with global equity markets mixed after a relatively uneventful FOMC meeting was overshadowed by reports regarding the next Fed Chair. In FX, the USD declined alongside UST yields on reports that President Trump is expected to appoint Governor Jerome Powell as the new Fed Chair
The Fed Chair decision should be formalised today, alongside the House’s tax plan release which was delayed yesterday. Powell is perceived as a Fed Chair close to the status quo, since his recent speeches and policy decisions have been fairly similar to Chair Janet Yellen’s.
With the USD on the back foot, our traders do not expect the formalised decision to drive market reaction today if Powell is confirmed. Nevertheless, if John Taylor is to be nominated as Vice Chair, that would tilt the reaction function to the hawkish side.
In the November FOMC statement, the committee signaled that the storm disruptions are transitory and the outlook still warrants gradual increases in the federal funds rate .
In UK data, Manufacturing PMI beat expectations (56.3 vs. 55.9 expected) adding to the GBP bid tone yesterday morning. However, this rhetoric reversed after Defence Secretary Michael Fallon announced his resignation, weighing on GBP ahead of the Bank of England decision today.
The Bank of England’s will take centre stage at midday, where they are widely expected to hike by 25bps to 0.5%. The MPC is likely to consider that the recent mix of data as supportive of a November hike, and communicate on the need for further hikes. However, Barclays Research “…does not expect the data over coming months to be strong enough to support further rate hikes in 2018…”.
In our view, a vote split different from 7-2 introduces two-sided risk for the currency with anything less likely to weigh on GBP, and vice versa. Our traders see short term GBPUSD support at 1.3240 ahead of 1.3070 and 1.3000, with 1.3340 and 1.3500 acting as resistance. EURGBP support comes in at 0.8735 with resistance at 0.8800-0.8830 ahead of 0.8900-20.

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