Pound Sterling Plummets Following Dovish Bank of England Statement
It was a terrible day for the Pound yesterday, as a dovish Bank of England policy statement sent Sterling plunging across the board.
The BoE voted 6-2 to leave interest rates on hold at a record low of 0.25% in August, which was pretty much what traders were expecting, however, some investors had hoped for a greater number of hawkish votes. The real damage was dealt by the bank’s revisions to British GDP forecasts, with the 2017 growth forecast downgraded from 1.9% to 1.7% and the 2018 estimate downgraded from 1.7% to 1.6%.
The new figures suggest that inflation (2.8%) will run a full percentage point higher than GDP growth this year, which spooked markets and contributed to the Sterling selloff.
BoE Governor Mark Carney also unsettled traders with talk of Brexit uncertainty, suggesting that firms were holding off on investment and wage hikes due to fears over a potential cliff-edge hard Brexit with no transitional deal to smooth out the process.
Pound to Euro Exchange Rate Skids to 9-Month Low on Dovish BoE
Sterling skidded to a nine-month low versus the single currency yesterday following the dovish BoE announcement. The Pound depreciated by around 130 pips following the central bank policy statement, which saw GDP forecasts downgraded and Governor Mark Carney employ dovish rhetoric.
The Euro, meanwhile, was galvanised by a promising Eurozone retail sales print of 3.1%, which beat estimates of 2.5%. British data actually printed positively, with the dominant services sector posting a slight acceleration in July. The tertiary output PMI inched up from 53.4 to 53.8, narrowly beating forecasts of 53.6.
Pound to US Dollar Exchange Rate Loses Over a Cent Ahead of US NFP Report
‘Cable’ slumped to a -130 pip daily defeat yesterday, sliding from a 10-month high as BoE rate hike bets were dealt a blow by a dovish policy statement from the UK central bank.
Over in the US durable goods orders registered an impressive 6.4% expansion, while factory orders increased 3.0% in June. It was not all plain sailing for the US Dollar, however, as the ISM non-manufacturing report showed that services activity slowed significantly from 57.4 to 53.9 in July.
The big data print to look out for during today’s session is the US non-farm payroll report, which is tipped to see robust jobs growth of 180,000. The ‘Greenback’ could rally if the labour market figure beats estimates but there is also potential for US Dollar weakness if the average hourly earnings component of the report underperforms. Traders are primed for wages to decelerate from 2.5% to 2.4%.
Pound to Canadian Dollar Exchange Rate Loses Out Ahead of Canadian Unemployment Report
The Pound to Canadian Dollar exchange rate lost out on around -120 pips yesterday as dovish BoE rhetoric weighed on Sterling. We could see GBP/CAD suffer further losses this afternoon if the Canadian unemployment rate report throws up any positive surprises. The market consensus is for a hold at 6.5%, but anything lower than that could bolster the appeal of the ‘Loonie’, especially considering the Bank of Canada’s hawkish policy bias.
Pound to Australian Dollar Exchange Rate Declines as BoE Outlook Deteriorates
Sterling declined by over -70 pips against the Australian Dollar yesterday as downgraded BoE growth forecasts and Brexit uncertainties reduced the appeal of the Pound.
Although inflation is currently running above target, some analysts have noted that the year-on-year impact of the Pound’s post-Brexit depreciation is starting to fade, now that it is over 12 months since the EU referendum. This theory suggests that UK inflation will start to recede over the coming months, therefore taking away any pressure that the BoE may have felt to consider hiking interest rates.
Pound to New Zealand Dollar Exchange Rate Down 2 Cents
The Pound to New Zealand Dollar exchange rate tumbled by around two whole cents yesterday as markets worldwide pummelled the Pound following the BoE’s August inflation and monetary policy report.
Data Released
13:30 USD Change in Non-farm Payrolls (JUL)
13:30 USD Average Hourly Earnings (YoY) (JUL)
13:30 USD Unemployment Rate (JUL)
13:30 CAD Unemployment Rate (JUL)
13:30 CAD Net Change in Employment (JUL)