Headlines
Today is ‘Super Thursday’ –
Possibility of rate hike votes in BoE minutes.
BoE inflation report on tap –
Pound could rise on hawkish sentiment.
UK services slow down –
Sterling remains sturdy vs. majors.
GBP/USD up as US trade weakens –
But US services soar.
Sterling
Today is the day dubbed ‘Super Thursday’ by economists on account of the Bank of England’s key policy announcements at midday.
For the first time ever the BoE will announce its interest rate decision and release the minutes from the discussion at the same time. The bank is almost certainly going to leave rates unchanged at 0.50% but recent remarks from policymakers suggest that the time is fast approaching for the first rate rise in years. This means investors will be looking out for signs of dissent within the Monetary Policy Committee (MPC). It is possible that two or more MPC members will vote in favour of hiking rates in August because the situation in Greece – which is currently a lot less threatening than it was a month ago – was previously cited as one of the main reasons officials had opted to leave rates on hold.
The bank will also release its inflation and growth projections for the rest of the year. Analysts anticipate a stronger growth outlook and a weaker inflation estimate. However, there is a possibility that policymakers will choose to focus on rising domestic price pressures, due to rising wages and buoyant labour market conditions, rather than falling commodity prices and the impact of the stronger Pound. If the minutes report and inflation projections support rate hike bets then Sterling could rocket higher across the board but if the central bank rhetoric is not seen to strike a hawkish enough tone then we could see the Pound fall down as profit taking stances take over.
Euro
Sterling rallied by over half a cent against the Euro yesterday even though British service sector output was reported to have decelerated in July. The key gauge of UK economic activity printed at 57.4, down from 58.5 in June. The worst month of employment growth for over a year plus a slowdown in business activity were to blame for the weaker-than-anticipated result.
However, markets were moved to drive GBP/EUR within 50 pips of a new seven-year high thanks to optimism that BoE rhetoric may signal a sooner-than-expected rate hike in the UK. If ‘Super Thursday’ lives up to bill in the same vein as ‘Super Mario’ Draghi of the European Central Bank did with his large-scale QE programme then Sterling should rally. But if ‘Super Thursday’ turns out to be a damp squib then GBP/EUR is likely to plummet.
Data in Europe yesterday showed that retail sales cooled from 2.6% to 1.2% in June and that private sector output in the currency bloc slowed from 54.2 to 53.9 in July, which weighed ever-so-slightly on demand for the single currency.
The Pound to US Dollar exchange rate strengthened by around 40 pips yesterday as hopes of a ‘Super Thursday’ boost to the Pound drove BoE rate hike bets higher.
American ecostats printed slightly out of sync. The trade balance widening from -$40.9 billion to -$43.8 billion and the ADP employment gauge dipped from 237,000 to 185,000 but the headline ISM service sector index surpassed expectations of 56.2 with a stupendous score of 60.3.
‘Cable’ also drew a little bit of support from the latest UK GDP revisions from the Office for National Statistics (ONS), which suggested that, whislt the UK recession was worse than the US slump, Britain recovered faster than America following the crisis. Some speculators saw this as a sign that the UK has stronger momentum and could see a rise in borrowing costs before the US.
Canadian Dollar
Sterling struck a fresh near-seven-year high against the Canadian Dollar yesterday as UK rate hike expectations improved and fears of another collapse in commodity prices fuelled demand for the Pound over the ‘Loonie’.
Although the value of crude oil rose for a second day, settling back above $50 a barrel, a chart released by Bloomber entitled ‘Carnage in Commodities’ detailed how almost all major commodities were currently seen to have fallen into bear markets with -20% drops from their previous bull peaks.
Australian Dollar
The Pound to Australian Dollar exchange rate rallied by around 130 pips yesterday as traders took profit after the large appreciation in favour of the ‘Aussie’ on Tuesday. The Antipodean currency had rallied 350 pips following encouraging remarks from the Reserve Bank of Australia but the recent shakeup in global commodity prices means demand for the Australian Dollar could remain muted.
New Zealand Dollar
Sterling grew by around two cents against the New Zealand Dollar yesterday as markets reacted to a rise in the headline New Zealand unemployment rate. The jobless rate jumped from 5.8% to 5.9% as recent data showed an unexpected slowdown in employment growth during the second quarter.
Data Released Today
09:30 GBP Industrial Production (YoY) (JUN) Medium 2.2%
12:00 GBP Bank of England Rate Decision (AUG 6) High 0.50%
12:00 GBP Bank of England Inflation Report High