- U.S. corporate earnings in Q3 keep investors’ risk appetite, lifting the GBP.
- Brown Brother Harriman (BBH): Expectations of a BoE hike on November 4 cut by 50%.
- GBP/USD: Strong resistance at 1.3830 despite hawkish comments from the BoE.
- For the second consecutive day, the British pound gains against the dollar amid risk-off sentiment.
GBP traded at 1.3789 during the U.S. session. During the Asian session, GBP/USD fell to 1.3756, but quickly jumped back to 1.3829, faced stiff resistance and pulled back to current levels.
U.S. Q3 corporate earnings keep investors’ risk appetite.
Positive market sentiment led to GBP’s recovery during the European session. Factors such as last week’s third-quarter US corporate earnings follow-up, in which Alphabet, Amazon, Apple and Microsoft all missed earnings reports this week, have kept this week’s market in a positive mood. Aside from macroeconomic developments, investors are interested in whether companies are passing on higher output prices to customers.
Furthermore, earnings season remains the driving force, with inflation and tighter monetary policy taking the back seat for now.
During the European session, UK Chancellor Sunak will reportedly unfreeze public sector wages next April. Reports suggest that Sunak will also announce an increase in the national minimum wage to GBP 9.50 per hour. He is scheduled to release his budget speech on Wednesday.
In a note to clients, Brown Brother Harriman (BBH) trimmed expectations for a rate hike by the Bank of England (BoE) at the November 4 meeting.
“WIRP indicates that the odds of lift-off on November 4 are now 50% instead of 100%, down from 100% at the start of last week. Lift-off at the upcoming Dec. 16 meeting remains at 100%,” says BBH.
Additionally, Silvana Tenreyro, a Bank of England external member, said on Monday that she needed more time to determine how licensing would affect the labor market, indicating she would not raise rates soon. Further, she added that inflationary pressures from higher energy prices were likely to fade quickly.
However, until the BoE monetary policy meeting on November 4, it appears the GBP/USD will hover around the 1.3770-1.3850 level. A surprise surge in sterling could push it beyond the strong resistance zone of 1.3830, but investors will likely trim their expectations of a rate hike, so it could be priced in already.
Divergent US macroeconomic data ignored by investors.
With no U.K. economic agenda, GBP/USD was left to the whims of the U.S. dollar. Meanwhile, the August reading for the U.S. house price index (MoM) rose 1%, below the expected 1.3%. As well, the S&P/Case-Shiller home price indexes (YoY) expanded 19.7% less than the 20.1% expected.
U.S. new home sales rose by 0.8 million in September, better than the 0.76 million analysts predicted. For October, consumer confidence improved to 113.8 from 108.3.