The British Pound may find support as the Bank of England opts for a wait-and-see approach in its Inflation Report, signaling additional QE is unlikely for now.

Talking Points

Pound May See Near-Term Gains as BOE Inflation Report Dents QE Outlook
US Dollar, Yen Fall on Risk Rebound China’s Leadership Make-Up Clarifies

The release of the Bank of England Inflation Report headlines the calendar in European hours. Traders will comb the document for clues about the likelihood of expanded QE efforts in the months ahead as well as guidance on the success of the new FLS lending program. UK economic data has performed broadly better relative to expectations over recent weeks, suggesting a wait-and-see posture is likely. This may ease near-term fears of further dilution and offer a bit of a lift to the British Pound, although follow-through is likely to be relatively limited considering this is already the base-case scenario at play in the markets. Separately, UK Jobless Claims are set to hold flat in October.

The US Dollar and Japanese Yen slumped amid waning safe-haven demand as risk appetite firmed across forex markets in overnight trade. Newswires chalked up the outcome the emergence of a degree of certainty on political leadership in China, where the 18th Communist Party Congress wraps up today. Vice President Xi Jinping and Vice Premier Li Keqiang were reportedly reappointed to the Party’s Central Committee, putting them in a position to take the reins and thereby reinforcing the markets’ status quo scenario for who would be in charge of the world’s second-largest economy for the next decade.

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