he Fed’s statement remained fairly hawkish and mostly as expected, reiterating that the ‘case for an increase in the federal funds rate has continued to strengthen’. Policymakers pointed to signs of a firming in inflation, removing the line in the statement that price growth would remain low in the near term.

While the number of dissenters voting for a hike fell from 3 to 2, we think last night’s statement keeps the Fed firmly on course to hike rates again in December, barring a financial market accident or possibly a Donald Trump Presidential Election victory.

Attention in the currency market quickly turns to this afternoon’s Bank of England interest rate announcement and Quarterly Inflation Report at midday. We are in line with the vast majority of the market and think that the monetary policy committee will keep rates unchanged at their record low today, while maintaining the current level of quantitative easing.

Speaking earlier in the month, Governor of the Bank of England Mark Carney alleviated concerns that the central bank was on the cusp of a second rate cut this year. Carney stated that the Bank would ‘undoubtedly’ take into account the ‘fairly substantial’ depreciation in Sterling when making its monetary policy decision. Last week’s impressive UK GDP numbers for the third quarter have also dramatically lessened the risk of a further cut before the end of the year.

Earlier on Wednesday, the Euro rallied to a fresh three week high against the Dollar following an impressive set of economic data in the Eurozone and growing uncertainty surrounding next week’s Presidential Election.

Investors fled from the US Dollar and Mexican Peso and piled into the safe-haven Japanese Yen and Swiss Franc, both of which strengthened sharply yesterday.

Major currencies in detail:

GBP

Sterling extended its run of gains yesterday, rising 0.3% against the US Dollar to its strongest position in three weeks ahead of today’s BoE meeting.

In the absence of any changes in policy today, investors will instead be looking for clues, in both the minutes of the meeting and Governor Carney’s press conference, as to the likelihood of further action before the end of the year. Any dissenters among the committee voting for an immediate rate cut could prove negative for Sterling today.

The Bank of England’s interest rate decision, meeting minutes and Quarterly Inflation Report will all be released at midday today, with Governor Mark Carney’s press conference to follow at 12:30 UK time.

EUR

The single currency rallied 0.2% to its highest level since 11 October on Wednesday, buoyed by the growing likelihood of a Trump Presidential Election victory.

Economic news yesterday was also solid. The unemployment rate in Germany fell more than expected and declined in percentage terms from 6.1% to 6%, its lowest level since unification in 1990.

Eurozone manufacturing activity also accelerated to its fastest rate in nearly three years in October. The PMI from Markit jumped from 52.6 to a 33 month high of 53.5, comfortably above the level of 50 that denotes expansion.

Unemployment data out this morning will be the main release in the Eurozone today. The jobless rate is expected to tick downwards from 10.1% to 10%.

USD

The US Dollar was sold-off for the second straight day, ending 0.3% lower on concerns that Donald Trump could be elected US President next week. A number of polls since the weekend have shown very little between the two candidates.

Prior to last night’s Fed’s meeting, the latest ADP employment report boded well for tomorrow’s nonfarm payrolls number. Private sector job creation of 147,000 was slightly below the 165,000 consensus, although this was more than made up for by a sharp 46,000 upward revision in the September number.

ISM’s non-manufacturing PMI this afternoon will be the main economic release today. Tomorrow’s US nonfarm payrolls report is the next key event on the horizon.

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