We love watching and trading financial markets because of the unpredictable nature of price action. We pat ourselves on the back when we analyse and predict correctly, trying to not get too excited. On the flip side, we are wary of market events beyond our control which may upset our view and positioning.

Yesterday was a classic day in terms of quiet summer markets being woken up with quite a bang! A shocking ADP report, the weakest since February, was at odds with record ISM services index growth which indicated persistent hiring obstacles in spite of improvements in the economy.

Even though the ADP data is a poor predictor of the key non-farm payrolls report on Friday, markets were readying themselves for a potential downbeat number.

Expectations of Fed rate hikes hit peak uncertainty and first rate hikes were pushed out to June 2023.

Hawkish Fed comments

But then Fed Governor Clarida’s comments hit the wires and markets did a full 180 turn. He said the central bank was on track to begin rate hikes in 2023 with a possible taper announcement later this year. A nod to lift-off moved money markets back to the start of 2023 which is where many market watchers have pencilled in their first Fed rate hike.

The dollar reacted accordingly, closing the day stronger. We now have the small matter of the monthly non-farm payrolls report to come tomorrow. That should provide the necessary ammunition for the hawks or the doves for the next few weeks at least!

Super Thursday Bank of England meeting

Consensus does not expect the latest BoE meeting to deliver a hawkish shift today, with likely no hints at an earlier hike and no more than two votes for an earlier end to QE. Ramsden and Saunders are the two notable hawks so all eyes will be on whether any other policymakers join them. Fairly upbeat forecasts should be released with the economy on track to reach pre-pandemic levels by year-end, with near-term inflation projections adjusted higher.

GBP is consolidating with yesterday’s move higher quashed by the Clarida comments.  If the market is looking for more than two votes and are disappointed, then sellers will come out. The 50-day and 100-day moving averages are capping prices at 1.3923 and 1.3933.

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