BANK OF ENGLAND LIKELY TO RAISE INTEREST RATES THURSDAY
Thursday is another action-filled day in the markets, as investors await a potentially landmark policy announcement from the Bank of England (BOE). The BOE is widely expected to raise interest rates as inflation continues to overshoot the central bank’s 2% target.
On the data front, IHS Markit will release a bevy of PMI reports on Thursday covering Spain, Italy, France, Germany and the broader Eurozone. The final Eurozone manufacturing PMI is expected to hit 58.6 for October.
The BOE will likely raise rates by 25 basis points on Thursday, according to a consensus market forecast. That brings the rate back up to 0.5%, where it stood between 2009 and August 2016. The central bank quickly slashed rates in the wake of Brexit to avoid any potential downside risks following the landmark referendum. Six of nine Monetary Policy Committee (MPC) members are expected to vote for a hike.
That being said, policy normalization is still a distant pipedream. The UK’s asset purchase facility is expected to hold steady at £435 billion per month.
In North America, the Labor Department will report on jobless claims, unit labor costs and nonfarm productivity at 12:30 GMT. The Institute for Supply Management (ISM) will release its New York business conditions index at 13:45 GMT.
Earlier in the day, the Australian government reported a much bigger than expected trade surplus for the month of September, as exports rose 3% and imports flat-lined. Canberra’s trade surplus climbed to $1.745 billion in September, more than double the previous month’s $873 million.
A separate report also showed an unexpected pick up in building permits. Australian building authorizations climbed 1.5% in September, following a downwardly revised gain of 0.1% the month before.
The British pound could be in for an active session as the BOE signals for higher interest rates. Cable, which currently trades around 1.3280, is looking to overcome the critical resistance of 1.3336. That represents the high from October. Certainly, momentum generated from the BOE announcement could send prices north of that level. The BOE holds all the cards on Thursday.
After a disastrous two weeks, the Australian dollar appears to be finally bouncing back. The AUD/USD exchange rate climbed half a percent on Thursday to reach 0.7716. The pair is bouncing from a test of the double bottom lows near 0.7620. Immediate support levels are located at 0.7650 and 0.7610. On the flipside, resistance is likely found at 0.7730 and 0.7775.
Europe’s common currency advanced on Thursday, although prices remained firmly capped below 1.1700 US. EUR/USD levels to watch include the 1.1670 resistance area. On the opposite side of the ledger, the region near 1.1600 provides a solid psychological support.