The British pound recovered for the second day in a row which says a lot because it comes on the heels of the first interest rate cut in two years.
The futures market is still pricing in 50 to 75bp of easing next year and if expectations are correct, then the pound should continue lower. However there are often retracements within a broad downtrend and we expect to see one at the beginning of next week. Before Tuesday’s FOMC meeting, we are expecting producer prices and the trade balance. The UK trade deficit should improve because the export component of manufacturing PMI accelerated last month. We already know that inflation is a problem because the latest monetary policy statement talked up the risks to short term inflation. However anything goes after the FOMC meeting because the US rate decision could shift the near term outlook for many currency pairs. On Wednesday we also have UK employment data which we expect to be pound bearish.