Daily Forex Report 27-Oct-2022: GBP tops out at six-week high against USD; Euro regains parity

Dovish policy from the Bank of Canada suggests global policy pivot

Cable topped out at a six-week high of US$1.163 this morning before plateauing throughout the Asia trading session.

The pair remains on a decent footing though, having benefitted from a softer US dollar over the past two days.

“Corrective forces are at work” as investors seek out riskier assets on the equities markets, reckons Chris Turner, head of FX strategy at ING.

The GBP/USD pair rises on soft US dollar – Source: capital.com

The pound stabilised against the euro in the lead up to today’s interest rate decision from the ECB (European Central Bank), with the EUR/GBP pair exchanging at 86.7p.

Another 75 bps hike from the ECB is generally expected, though a softer 50 bps hike wouldn’t be too shocking.

The big test for the euro is if it can maintain parity with the US dollar, having broken through the barrier during yesterday’s session.

At US$1.065, there is at least a bit of headroom to sustain the EUR/USD pair above par should a lighter rate hike be announced, but one wonders if the psychological barrier will drive hawkish sentiment in today’s meeting.

The BoC (Bank of Canada) turned a few heads after proving more dovish than expected- its 50 bps rate hike came below 75 bps expectations.

Despite a brief kneejerk reaction that saw the USD/CAD pair jump as high as US$1.365, the Loonie actually responded well to the surprise, and the pair drew back to US$1.355.

Kneejerk spike aside, the Canadian dollar reacted well to the BoC’s softer approach to rates – Source: capital.com

The BoC’s dovish action could be a sign of a global policy pivot.

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