- GBP/USD is the joint best performing G10 currency on Wednesday along with NZD.
- However, FX markets are mostly in wait-and-see mode ahead of the Fed meeting.
GBP/USD is currently trading above 1.3650, having bounced from Asian session lows near 1.3600. With the pair up roughly 0.3% so far this session, sterling is the best performing G10 currency this morning along with the New Zealand dollar.
Unlike the New Zealand dollar, which is benefiting from a strong Q3 jobs report released during the Asian session on Wednesday. It is unclear why GBP/USD outperformed on Wednesday ahead of the Fed’s highly anticipated monetary policy announcement.
In general, the foreign exchange market is mostly subdued with the other G10 majors largely unchanged. Additionally traders/market participants are hesitant to place large bets ahead of the Fed meeting at 18:00GMT. Powell’s post-meeting press conference at 18:30GMT.
A significantly stronger-than-expected estimate of October’s national employment change did not affect the US dollar. (ADP, which came in at 571,000 versus forecasts of 400,000). As well as a significantly stronger-than-expected ISM services PMI survey, also for October.
In terms of the latter, the overall index rose to 66.7, well above forecasts of 62.0. Amid a sharp rise in the business activity and new orders sub-indices. Indicating that US growth momentum has picked up sharply at the start of the fourth quarter.
Sterling’s outperformance could be a reflection of economic optimism
Sterling’s outperformance could be a reflection of economic optimism after IHS Markit released its final version of the October UK services PMI survey this morning in which the headline index got a decent upward revision to 59.1 from the previous estimate of 58.0. A substantial jump from September’s reading of 55.4.
This suggests that the UK economy’s economic growth momentum has improved as the month of October approaches. “The dominant services sector of the U.K. economy had a surprisingly good month in October with a strong pickup in overall output, job creation, new orders as businesses and consumers began to spend again unencumbered by the blockade and pandemic restrictions,” says Duncan Brock, group director of the Chartered Institute of Procurement & Supply.
In other news, Brexit remains a hot topic; British Prime Minister Boris Johnson stated on Wednesday that the United Kingdom wants “substantial” changes to the existing Northern Ireland Protocol. The U.K. economy’s dominant services sector had a surprisingly good month in October with a strong pickup in overall output,
job creation and new orders as businesses and consumers began to spend again unencumbered by the blockade and pandemic restrictions.”
Elsewhere, Brexit remains in the headlines; British Prime Minister Boris Johnson said Wednesday that the U.K. wants “substantial” changes to the existing Northern Ireland Protocol.
Political analysts expect the UK to trigger Article 16 soon
Political analysts anticipate that the United Kingdom will soon invoke Article 16, which allows the United Kingdom to take unilateral action on the agreement. If it believes that implementing the protocol will have serious negative consequences. EU leaders have warned the UK not to take that step, as it could lead to more tense negotiations on trade and legal issues. As well as jeopardizing the ongoing fisheries dispute between the UK and France.
However, the tone of the news on the latter dispute has improved in recent days. After the French decided not to impose retaliatory measures on UK overfishing access and French government ministers recently praised the UK government’s constructive approach to fisheries discussions.
Looking ahead, traders won’t have much time to rest after Wednesday’s Fed event. As focus will shift to a live Bank of England meeting on Thursday, where economists are split on whether the bank will raise rates by 15 basis points.