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BoE holds rates for 82nd month
– No hike expected until after EU vote.
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– German economy running at 4-year high.
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‘Cable’ close to five-year low
– Slowdown in US data expected this afternoon.
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GBP/NZD strikes monthly high
– Crude oil near 12-year low.
Sterling
The Bank of England’s decision to leave rates on hold at 0.50% for the 82nd month in a row was hardly a shock, in fact it was telegraphed by practically every single analyst beforehand. But the minutes did contain some hints as to when the bank might start raising rates. Policymakers expressed concerns that the latest leg of the oil price plunge could depress inflationary pressures in 2016 and highlighted headwinds from emerging markets, where fierce volatility has ensued already this year.
The BoE also noted that speculation regarding the proposed in/out EU referendum had caused Sterling to depreciate. And, all things considered, it now looks unlikely that the bank will begin its tightening cycle until after the EU vote so as not to rock the already shaky boat.
Euro
The Pound to Euro exchange rate depreciated by around a cent yesterday morning to strike a new yearly low as traders pushed back their bets for a rate hike from the BoE.
However, Sterling was able to claw back some of its losses during the afternoon, possibly in response to the mildly encouraging news that, despite the latest economic developments, Ian McCafferty still voted for a rate rise this month. The 8-1 split means there is still hope for the hawks; if McCafferty had retracted his vote the Pound could have suffered heavier losses.
Data out of Germany showed that the Eurozone’s largest economy grew at an annual rate of 1.7% in 2015, which was the German economy’s best performance in four years.
US Dollar
Sterling came close to striking a new five-and-a-half-year low against the US Dollar yesterday as demand for the Pound remained weak in light of reduced hopes for a rise in British interest rates during the first half of the year.
However, the Pound recovered during the New York session as markets reacted to comments from Federal Reserve policymaker James Bullard suggesting that ‘very substantial’ oil price moves could weigh on inflation and therefore delay further Fed tightening.
Later today US advance retail sales are expected to come in at -0.1%, industrial production is tipped to decline -0.2% and business inventories are forecast to have fallen -0.1%. These soft figures could give Sterling a little bit of a boost going into the weekend.
Canadian Dollar
The Pound to Canadian Dollar exchange rate traded flatly yesterday as soft BoE rate hike bets softened the appeal of the Pound and 12-year low crude oil prices reduced investors’ appetite for the commodity-sensitive ‘Loonie’.
The Canadian Dollar is one of the few currencies that Sterling has managed to register gains against so far in 2016.
Australian Dollar
The Pound fell by around a cent against the Australian Dollar yesterday as risk aversion trends cooled off slightly and Australian unemployment beat expectations.
Traders had anticipated a rise in the jobless rate from 5.8% to 5.9% but the actual figures showed that the labour market only lost -1,000 jobs in December, meaning that unemployment remained at 5.8%.
New Zealand Dollar
Sterling strengthened by over half a cent against the New Zealand Dollar yesterday to reach a new monthly high. Riskier currencies such as the ‘Kiwi’ and the ‘Aussie’ have struggled during the first fortnight of the year due to concerning currency fluctuations and equity market slides in China – the largest buyer of goods from both New Zealand and Australia. So while on a trade-weighted level Sterling has had a poor start to the year, it has not done so badly against the risk-correlated commodity bloc.
Data Released
13:30 USD Advance Retail Sales (DEC) High -0.1%
14:15 USD Industrial Production (DEC) Medium -0.2%
15:00 USD Business Inventories (NOV) Medium -0.1%
15:00 USD U. of Michigan Confidence (JAN P) High 92.6