Dovish BofE causes GBP to fall; Norway surprises with no cut; USD direction dependent on strong labour market

By Kymberly Martin

Reversing the previous day’s moves, NZD and NOK have been the strongest performers over the past 24-hours. The GBP has been the worst performer.

Markets were fairly listless last night, appearing to already be in ‘wait and see’ mode ahead of tonight’s US payrolls release.

The USD failed to push higher, despite a further rise in US yields. In this backdrop the EUR/USD bobbed around in response to regional data (mostly disappointing) but didn’t come to much. It trades at 1.0870 this morning.

The GBP fell heavily after the Bank of England left policy unchanged yesterday, accompanied by fairly dovish rhetoric. The GBP/USD now trades at 1.5230.

The Norges Bank also left its cash rate unchanged at 0.75% overnight. Whilst it left the door open to a further cut in the future, the ‘no move’ clearly took some by surprise. The NOK has rebounded more than 1.0% against the USD since the announcement.

The NZD/USD has pushed higher overnight, pushing through resistance at 0.6620 in the early hours of this morning, before returning to trade at this level currently.

With little on the local data agenda today, the NZD/USD’s fate will be in the hands of the US payrolls report this evening. Given the market has moved, in recent days, to price more than a 50% chance of a Fed hike by year-end, the onus on the data has shifted. It will need to be at least in line with expectations to sustain the current level of the USD. A disappointment could see the USD quickly slump, as the market unwinds near-term rate hike expectations.


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Daily exchange rates

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Kymberly Martin is on the BNZ Research team. All its research is available here.