It will be a very interesting week, and on several fronts - for both the British pound and the euro or US dollar. Therefore, it seems that there should be enough topics for markets and investors, and the volatility on individual currency pairs may be increased.
This week, several important US readings will be released just before the Fed's interest rate decision on October 30. The interest rate market with a 90 percent probability estimates the cut from 1.75-2.00 to 1.5-1.75 percent, thus below the latest macroeconomic projections of the Federal Open Market Committee (FOMC). In addition to the global slowdown, which also casts a shadow on the US economy, there is another factor that may point to monetary easing in the US. These are market inflation expectations, which fell to 1.68 percent, the lowest level since September 2016. This, in turn, may affect the weakness of the US dollar in the medium term.
On Saturday, October 19, the Brexit agreement was not voted in the British Parliament. Hence the expected huge volatility did not appear on the pound, which does not mean that the case has been completed. Prime Minister Boris Johnson, but also investors, are preparing for a vote today on Monday, October 21. Whether the vote will take place is not certain yet, but investors in the options market do not risk and buy options to protect themselves against a drop in the pound in the market. The implied volatility for one-day options on GBP/USD has risen for the sixth day in a row to the highest level since June 2017. This only shows how huge the uncertainty about Brexit is and how investors need to constantly adjust their positions. It is therefore worth being careful when it comes to GBP.
Also, we cannot ignore the last meeting of the European Central Bank, headed by Mario Draghi. Draghi is saying goodbye to this institution after eight years this week. In these years he had to deal with the problems of the eurozone, its possible breakup or division. The eurozone has been successfully maintained, but its condition is now quite weak, but Christine Lagarde will have to deal with it. ECB decision on Thursday, October 24 at 13:45 and the press conference at 14:30. Not much is expected after this meeting when it comes to monetary policy changes.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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