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  • richard evans

BoC likely to raise rates 25bps, possibly pause after

Good morning

I was out for much of the day yesterday but it doesn’t look as though I missed much. US dollar is a little higher this morning with GBPUSD down to 1.2135 and EURUSD 1.0455, some way off recent highs, but so far nothing dramatic.

A bit of talk of a possible recession in the US in 2023, Goldman Sachs sees such a possibility at around 65%. Goldmans, Morgan Stanley and BofA all looking at making job cuts amid what they see as economic uncertainty.

In the UK I haven’t seen such talk of job cuts but I have seen that almost 1 million workers are set to strike this month and next. I’m not a fan of strike action although I have never worked in an industry with a trade union. I do find it incredible that some workers think they are entitled to a pay rise regardless of the economic situation, this sense of entitlement is something I have a real problem with, there are of course some works that have not had a pay rise for some time, but they seem to think that everyone else in the working world gets a regular pay rise. Most people will confirm this is absolutely not the case.

US are looking to send more military assets including jet fighters and bombers to Australia in the wake of what they regard as ‘dangerous and coercive actions’ from China. There is certainly a power struggle forming and US are determined to test China’s resolve in the region. Meanwhile China reopening is an ongoing theme, can’t come too soon for China given their ‘weak’ trade numbers that were released overnight which show a surplus of ‘just’ $70bn with a sharp decline in both imports and exports. There is a worry that reopening over the winter presents a big risk, particularly given the low rate of decent vaccinations which could put more and more pressure on hospitals. We won’t really see if this is the case until Fed or March next year.

BoC rate announcement today and a 25bps is on the cards which would take rates to 4%. This would be the smallest increase since they started raising rates back in March would lend weight to BoCs recent comments that they are nearing the end of this rate rise cycle. UDSCAD currently up at 1.3670, almost 300 points off this weeks low. It is possible we will see a push towards 1.4000 as we did back in October, particularly if BoC give an indication they are pausing rate rises.

We have a couple of days without football as the first round of knockout matches finished last night, with Morocco knocking Spain out on penalties and Portugal sending Switzerland home with a 6-1 drubbing. We have to wait until Friday for the first of the quarter finals, which will see Croatia take on Brazil and Netherlands face Argentina.

In the meantime, stay warm. We had a frost this morning for the first time in a long time, and temperatures look like they will continue to drop. Time to dig out those winter coats……

- 10.00 EU GDP

- 13.30 US nonfarm productivity

- 14.30 ECBs Panetta speaks

- 15.00 BoC rate announcement

- 23.50 Japan GDP

- 00.30 AUS trade balance

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