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Bailey Dampens Rate Cut Expectations

FOREX

Implied vols receded early Tuesday, with markets resuming the recent trend of selling USD in favour of growth proxies including AUD and NZD. Equities are mixed, although US futures are pointing to a mildly positive open later today, which has given markets the greenlight to resume their USD-selling bias. A lower close for the USD index today would be the first down-day since Jan 5th.

GBP trades well following a speech from BoE governor Bailey who highlighted the difficulties and uncertainties when it comes to negative interest rates. Bailey stated that while there "nothing to stop" the imposition of negative interest rates, there would be lots of issues including complicating the outlook for the banking sector. Markets read these comments as a firm indication that the MPC are still well away from seriously considering NIRP, resulting in markets pushing out rate cut expectations and boosting GBP in the process. GBP/USD showed above $1.36.

The data schedule is particularly quiet Tuesday, with just US JOLTS job openings data on the docket. Fed's Brainard, George & Rosengren speak as well as ECB's de Cos.

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