FX Update: BoE trips up market. High bar for US data surprises. FX Update: BoE trips up market. High bar for US data surprises. FX Update: BoE trips up market. High bar for US data surprises.

FX Update: BoE trips up market. High bar for US data surprises.

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The Bank of England executed one of the more stunning communication fails in recent memory at its meeting, with its caution tripping up a market that was expecting a more hawkish meeting and sending sterling into a tailspin. Elsewhere, the Czech central bank hiked 125 basis points, more than the market was expecting. Today, the focus shifts to the US payrolls and earnings data, where the latter may show increasing sway on Fed expectations in coming months.

FX Trading focus: BoE trips up market, High bar for US jobs report? CZK carry trade?

Bank of England trips up market with no hike and forward guidance. A majority were looking for a 15-basis point hike at yesterday’s Bank of England meeting and fairly strong guidance from the bank on its intent to hike rates further at coming meetings. Instead, it got no hike and a Governor Bailey reluctant to commit to much in the way of forward guidance. The Governor had the gumption to say it was not the Bank’s job to guide the market “day by day and week by week” on interest rate hikes. He also waxed cautious on how the jobs market would behave in the wake of the recent end to the furlough scheme. The market was rather traumatized by this terrible communication breakdown after often urgent, if also confusing, rhetoric from Governor Bailey himself on the need to get started on hiking rates. Expectations for the policy rate by the end of next year dropped more than a full 25 basis points in the wake of this debacle as the market resets its expectations. UK jobs and earnings data will carry added weight from here relative to headline inflation.

There is a high bar for the US jobs report to jolt Fed rate hike expectations back higher, which is not to say that this and future reports don’t eventually clear that bar. Fed Chair Powell has set up a tense period for how to treat incoming data as he still believes that inflation will fall back even if “baseline expectation is supply bottle necks and shortages will persist well into next year and elevated inflation as well.” This suggests that almost any level of inflation in the coming handful or more of months won’t jolt Fed guidance without other incoming data clearly pointing to a rapidly tightening job market and even a budding wage-price spiral. Earnings could seize increasing attentionin particular, as huge payrolls growth numbers are unlikely to be sustained in a US labor market that is supply constrained by millions of early retirements during the pandemic, ongoing virus concerns keeping some parents in part-time roles, and vaccine mandates sidelining others. Today’s October Average Hourly Earnings rise is expected at +0.4% MoM and +4.9% YoY. The October nonfarm payrolls change is expected at +450k after the low +194k print for September. If the data is fairly in-line, not much may change at the short end of the US yield curve, but very interesting to see what happens at the longer end of the yield curve on any data surprise. Would hot data unmoor the longer end on the assumption the Fed is getting to reckless here?

Chart: EURUSD vs. 2-year EU-US yield spread
There is no iron law that says a currency pair has to track the developments in relative yields, but it is often an important driver, and the last year or so of market auction has shown a strong directional correlation. Will today’s US jobs report release keep US short yields relatively elevated after the ECB has pushed back against market pricing of rate hikes next year and send the EURUSD plunging through 1.1500, toward the ultimate trend test into the 1.1300 area (the 61.8% retracement of the rally from the 2020 lows to 2021 highs comes in at 1.1290.

Source: Bloomberg

Czech central bank hikes by 125 basis points, more than expected. The market was looking for a smaller, if still large 75- or possibly 100-bps hike to the policy rate in Czechia yesterday, but the central bank delivered more, taking the policy rate to 2.75%, the highest since 2008 as the bank attempts to get ahead of inflation risks after the Czech CPI reached 4.9% in September. Governor Rusnok said that inflation could reach as high as 7% this winter and promised more rate hikes to come. The next Czech CPI release is next week. EURCZK traded sharply lower yesterday in a further retreat from October highs above 25.75 and is now close to the range lows this year of 25.25, with CZK longs now earning over 300 basis points of carry versus the negative yielding Euro. Looking at the chart for the last few years since the Czech central bank raised the EURCZK floor back in 2013, there may be a significant psychological barrier in place into the 25.00-25.25 area, but shorting EURCZK offers more than 300 basis points of carry and the Czech central bank is delivering a hawkish message, hiking now and a lot, while the ECB is trying to guide that it is unlikely to see conditions in place for a hike next year. The 1-year forward EURCZK is almost a figure higher as more rate hikes are priced in – an interesting carry proposition.

Table: FX Board of G10 and CNH trend evolution and strength
The USD is tilting hard to the upside ahead of today’s jobs report. Does it achieve broad breakthrough? Elsewhere, sterling is tumbling into the abyss suddenly while Aussie and NOK have lost severe momentum this week.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs
In the individual pairs, AUDUSD is tilting lower, USDCAD is tilting higher and NZDUSD is also on the verge of a flip to the downside in favour of the US dollar – all contingent on today’s US jobs report. JPY crosses in many places show directional sympathy with the US dollar direction – watching US yields for whether this might change (i.e., if long yields pick up again, as JPY often negatively correlated with US 10- and longer treasury yields.)

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (all times GMT)

  • 1215 – UK Bank of England Chief Economist Pill, Deputy Governor Ramsden to speak
  • 1230 – Canada Oct. Net Change in Employment/Unemployment Rate
  • 1230 – US Oct. Average Hourly Earnings
  • 1230 – US Oct. Nonfarm Payrolls Change
  • 1230 – US Oct. Unemployment Rate
  • 1300 – Bank of England’s Tenreyro to speak
  • 1400 – Canada Oct. Ivey PMI


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Support Centre
For existing clients, please click here to request support via the Support Centre.

Have a question about our products, platforms or services? Visit the Support Centre to find answers for our most frequently asked questions. If you are still unable to locate an answer to your question, you will also find contact details for your local Saxo office to speak with a representative.

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.