NZD caught in the crossfire as Bank of England leaves rates on hold

Key Movers

The Bank of England dominated headlines and direction overnight stunning markets when they opted to leave interest rates on hold. Analysts had largely priced in a 15-basis point rate hike following a string of hawkish BoE commentary and direct indication the MPC “will have to move”. Policymakers opted to maintain a tightening bias yet saw value in deferring a rate hike until after UK labour market supports end and new tax hikes are introduced. They maintained their view that inflation is anchored by transitory supply constraints and while acknowledging they will need to act to control price pressures, the urgency was perhaps not as pressing as first indicated. This dovish shift sent UK bond rates and the GBP tumbling. Sterling has given up nearly 1.5% overnight diving below 1.34 and touching lows at 1.3745. The euro, CAD, AUD and NZD were all dragged lower, while the US dollar advanced as the dollar index approached year-to-date highs.

This week we have seen a concerted dovish push back from the RBA, Fed, BoE and ECB in a bid to control a recent surge in global bond rates and curtail expectations of monetary policy normalisation in 2022. The impacts of the pandemic are still being felt and central banks have been careful to temper expectations.

Our attentions now turn to the US non-farm payroll print. We are anticipating the US economy will have added 450,000 jobs in October and the unemployment rate to decline by 0.1% as the economy continues to recover from the impacts of the Delta variant. We are keenly attuned to average hourly earnings. Any indication wage growth continues to outpace expectation will support the broader tightening in labour market conditions and could help underpin USD gains into the weekend.