Mark Carney yesterday suggested the pound’s weakness is no barrier for there to be a further rate cut in the UK. There is a belief amongst economists that the interest rate level will be cut to 0.1% which would be the second cut in 3 months.
However, the money markets suggest that there is almost no chance of a cut, with the 17% likelihood of their being further cuts after the last one now sitting at 5%. The difference of opinion really does mean that there is little indication as to what will happen and the uncertainty will cause major volatility.
Paddy Power pays out early
Betting company Paddy Power have announced today that they will pay out early on bets for Hilary Clinton to win the US Election. They state despite Trump putting up a valiant effort they believe he has essentially no chance of winning. The current odds suggest Clinton has an 84.6% chance of a victory whilst Trump has a mere 18% chance. Bookies don’t tend to be wrong all that often so this could be a major indication as to the likelihood of results. That being said, similar suggestions were made towards the UK’s Referendum in June, polls should not always be used as indications of results.
Fed Vice Chair Stanley Fischer raises concerns
The Fed’s number 2 suggested that low rates have slowed growth and could continue to do so. Furthermore, he suggested the Fed keeping rates at this level will prevent the effect they could have on another recession. The normal procedure would be to cut rates and encourage borrowing increasing spending. Evidently if there was little to cut it wouldn’t be seen as having a major impact. Finally, it encourages people to take riskier bets, when you don’t get much return on super safe bonds you turn to riskier emerging markets. This in turn creates more risk for the markets.
In my opinion I believe we could see the GBP/USD rate drop below the 1.20 level and this could even happen in the run-up. Personally the only likelihood of there being any strength for sterling would be from Trump winning the election.