Headlines
Not so super Thursday –
No positive rate hike bet developments.
BoE unlikely to tighten in 2015 –
Strong Pound and soft inflation holding back hawks.
B
oE negatively revises 2015 inflation forecasts –
Sterling softens across the board.
GBP/USD up as US trade weakens –
But US services soar.
Sterling
So-called ‘Super Thursday’ turned out to be a bit of a damp squib. Markets had hoped for a clear message from the Bank of England’s triple whammy of rate decision, minutes report and inflation report.
But what they got was more of the same: a vague recognition that improvements in wage growth and overall economic output were paving the way for a rate hike; another dose of unbinding rate hike rhetoric without a concrete timeframe; and more warnings that soft inflation and the strong Pound could deter attempts to tighten policy.
The only real piece of new news that came from the trifecta of central bank literature was the fact that one policymaker voted for a hike in August – but even that was a disappointment because markets had hoped for two or three officials to jump ship to HMS Hawk.
As things stand the BoE will probably wait until the first quarter of next year to start raising rates. The possibility of a round of tightening in 2015 remains but the possibility became much smaller and Sterling plunged across the board in recognition of this fact. If inflation spikes unexpectedly in the second half of the year then we could see a December hike. Conversely, if domestic indicators start to seriously underperform current levels of growth then the central bank may hold off until even later to begin its long-awaited tightening cycle.
Euro
The Pound to Euro exchange rate tumbled by just over a cent yesterday as markets reacted to the not-hawkish-enough melee of BoE announcements.
The triple release saw BoE Governor Mark Carney confirm that ‘the likely timing of the first bank rate increase is drawing closer’ but the Canadian national revealed that his previous assertion that rates could rise around the turn of the year was a personal comment rather than representative of the whole nine-person Monetary Policy Committee (MPC).
The inflation report saw a tentative revision to the three-year inflation forecast from 2.08% to 2.05% and a larger downgrade to the 2015 projection from 0.6% to 0.3%. The revisions were seen to suggest that rates would remain on hold throughout 2015 and this contributed to the -110 pip decline in the single currency.
US Dollar
Sterling plummeted by around -120 pips against the US Dollar yesterday as rate hike expectations reflected the current understanding that the Federal Reserve will start raising rates before the BoE.
Later today the US Dollar is likely to fluctuate upon the release of the latest US non-farm payrolls report. Analysts are primed for a sturdy score of around 225,000 but the Dollar could weaken if the labour figure comes in below 200,000. Conversely, the ‘Greenback’ could strengthen if the NFP number prints above 275,000.
Currently, the Fed looks set to hike in December with the BoE following suit a couple of months later. But a strong NFP could open the door to an earlier Fed hike in September, which would likely send the US Dollar soaring against the Pound.
Canadian Dollar
The Pound to Canadian Dollar exchange rate softened by around -160 pips from a near-seven-year high yesterday. The UK currency slumped across the board, including against the ‘Loonie’, when the BoE minutes report showed that only one member of the MPC voted for a rate rise in August and the inflation report showed that price pressures are expected to remain weak for the remainder of the year.
Later today Canadian unemployment is tipped to remain at 6.8%, which shouldn’t have too much of an impact on the commodity-sensitive currency.
Australian Dollar
Overall the Pound lost out on around a cent against the Australian Dollar yesterday.
Sterling had initially appreciated by around 100 pips when labour market data down under showed that unemployment rose unexpectedly from 6.1% to 6.3% in July. The downbeat result brought the prospect of another Reserve Bank of Australia rate cut right back onto the table and weighed heavily over the Antipodean currency.
However, the Pound gave up its ‘Aussie’ labour market gains and softened by a further -100 pips when the BoE triple whammy hit newswires and 2015 rate hike bets were banished.
New Zealand Dollar
The Pound lost out on around two cents against the New Zealand Dollar yesterday as traders reacted sharply to a downtick in 2015 BoE rate hike predictions.
Data Released Today
09:30 GBP Visible Trade Balance (Pounds) (JUN) Medium -£9300
13:30 USD Change in Non-farm Payrolls (JUL) High 225K
13:30 USD Unemployment Rate (JUL) High 5.3%
13:30 USD Average Hourly Earnings (YoY) (JUL) Medium 2.3%
13:30 CAD Unemployment Rate (JUL) High 6.8%
13:30 CAD Net Change in Employment (JUL) High 9.8K