Currency markets endured a volatile end to the day yesterday after Federal Reserve Chairman Jerome Powell spoke at the Economic Club of New York, in one of the last Fed speeches ahead of the black out period before the November rate decision. Powell suggested that the Fed is currently inclined to keep interest rates on hold at its next policy meeting, whilst leaving the door open to the possibility of a further increase should policymakers see further signs of resilient economic growth. Recent rhetoric continues, with Powell saying, given the uncertainties and risks, and how far we have come, the committee is proceeding carefully.” The market has taken the statement as the Fed will hold on their next meeting (second straight meeting) while holding the door open for a future hike if the data warrants it. Powell also said that the recent run up in yields could lessen the need for further hikes at the margin. Yields have rallied since the Fed moved their quarterly projections last month, but the market won’t believe the Fed unless they act on the front of the curve. The US dollar lost ground against its G10 peers with EURUSD moving higher, although the pair once again ran in to offers around 1.0620 which has recently proved to be stubborn resistance.
Data released this morning showed that UK Retail Sales fell more than expected as unseasonal warm weather kept consumers from spending on autumn clothing. The volume of goods sold in stores and online fell 0.9% in September, erasing a 0.4% gain the previous month. The figures follow recent disappointing data which point towards a further weakening in the economy, with wage growth ticking lower, unemployment rising, weak business activity and falling consumer confidence. In a newspaper interview, BoE governor Andrew Bailey said that he expects inflation to “keep coming down” despite recent wage growth. MPC members voted to keep rates unchanged at the last MPC meeting, pausing after 14 consecutive rate increases and next meet on 2 November. The pound is lower with GBPUSD falling below 1.21 before retracing and EURGBP breaking the key 0.8705/10 area.
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