Uneasy Truce

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The base case for the BoE decision is for £100 bn in extra QE, with the GBP reaction likely to be shaped by the extent of the 9-person consensus at the MPC. Also look for hints on the likelihood of zero interest rates. The complexity will surface in the event of a smaller than expected consensus (such as 7-2 or 8-1) in which case GBP would try to rebound before the commentary/language takes over regarding the probability for for further rate cuts. 

Ranges are narrowing and doji stars are appearing on more charts as market participants weigh the balance between easy money and the virus. Data was generally negative with US housing starts missing estimates and COVID-19 cases in US hotspots remaining elevated.

That was enough to sap some early optimism and send USD/JPY to a three-day low but the overall picture was of modest market moves and consolidation. Powell spoke in his second day of testimony and repeated his points about keeping policy easy but it was Atlanta Fed President Bostic who highlighted the crux of the problem. There is not a lot of historical precedent to predict a post-virus economy, he said.

The unease in markets has narrowed ranges but that won't last for long. Looking ahead, the weekly initial jobless claims report is due on Thursday and expected to show another 1290K claims. The market is also watching continuing claims, which were at 20.93m last week and is expected to slip to 19.85m.