On Thursday, the US dollar once again showed mixed dynamics during Europe’s trading. This time, it was up against the euro, franc, yen, and Kiwi dollar, and down against the pound and Aussie dollar. The Australian dollar gained ground in Asia after the publication of strong data on the Australian labour market.
The pound went up after the BoE announced its interest rate decision and published their minutes. The Bank of England decided to maintain the base rate at its current level of 0.25%. They also took the decision to maintain their government bond purchases at 435bn GBP, and their corporate bond purchases at 10bn GBP.
7 out of 9 members of the BoE’s Monetary Policy Committee voted to leave rates unchanged. Only Ian McCafferty and Michael Saunders supported a hike of 25 base points.
The pound initially reacted with a 50-pip drop to 1.3150. The negative reaction was due to the extra vote in favour of maintaining rates. The price then sharply reversed upwards, hitting 1.3341 to mark a rise of 190 pips. In the BoE’s minutes, buyers found hints of reluctance to take any measures to stimulate the economy should it develop in line with the forecasts made in August.
On Thursday, US 10Y bond yields continue to rise. As of the time of writing, they’ve gained 0.9%, rising to 2.20%. As bond yields rise, so does the dollar. The euro has come under pressure from the euro/pound cross. The price will most likely fail to reach 1.1921. If US10Y bond yields continue to grow, prepare for the euro/dollar to reach the Asian low of 1.1866. When the usually uniform pairs of euro/dollar and pound/dollar start to diverge, it’s best to watch the market from the sidelines. It’s unclear whether the pound will drag the other majors up with it, or whether they’ll bring the pound back down to Earth.