Dormant FX markets came to life today although major crosses remain within
multi-week ranges.
GBP/USD, which had stagnated around 1.284 for the past three sessions, dropped below 1.28 for the first time since mid-October after the Bank of England surprised markets with two MPC members voting in favour of a 25bp rate cut – the first time any MPC member has voted for a rate cut since the Bank of England cut its policy rate to 0.75% in the wake of the June 2016 EU referendum.
Analysts had forecast that all nine MPC members would vote in favour of the policy rate remaining unchanged at 0.75% but Michael Saunders and Jonathan Haskel – two of the more dovish MPC members – voted in favour of rates being cut to 0.50%, pointing to some slack in the labour market and downside risks from slowing global growth and Brexit. This should perhaps not have come as a major surprise given weak UK macro data in recent weeks and the fact that other major central banks have been cutting rates since May but the overwhelming view had been that MPC members would not dissent until there was greater clarity on the Brexit front.
The AUD/USD cross, which in early trading had fallen to a five-session low of 0.686 rallied above 0.69 after the release of another very strong set of international trade data. The Australia trade surplus of AUD 7.2bn in September was the third largest ever recorded. The three largest monthly trade surpluses have been in the past four months, with the strength of Australian exports contrasting with only modest domestic economic activity. Nevertheless, the AUD/USD is still struggling to sustain gains beyond 0.69
and remains in the narrow 0.668-0.692 range in place since late-July.
