ednesday’s final services PMI came in unrevised at 47.4, confirming the largest decline in the measure since records began in 1998. This follows Tuesday’s manufacturing survey which fell to its weakest level in over three years.

We now think a 25 basis point rate cut is almost a certainty. Financial markets are placing as-near-as-makes-no-difference 100% implied probability of a rate cut. We’re also pencilling in around a £100 billion increase in quantitative easing measures and expect to see a sizable downward revision in growth forecasts to around zero for 2016.

The bar is now set extremely high for the Bank of England to deliver and a failure to cut rates or increase the asset purchasing programme would be viewed as a massive disappointment by the market and would almost certainly send Sterling back above the key resistance level of 1.35 against the US Dollar.

We remain cautious, with July’s underwhelming lack of stimulus still fresh in the memory. Analysts are split as to whether we’ll see an expansion in the QE programme, with consensus pointing to around a £40 billion increase.

Yesterday the Euro fell sharply despite an impressive set of economic data, which saw activity in the Eurozone’s services sector increase in July.

The US Dollar received decent support from a strong ADP employment report, which bodes well for this Friday’s nonfarm payrolls figure. Employment in the private sector of the US economy grew by 179,000 in July, boosting the US Dollar index from its near 6 week lows.

Major currencies in detail:

GBP

Sterling edged 0.25% higher ahead of today’s crucial Bank of England announcement.

Alongside the rate decision today, the Bank of England will be releasing its quarterly inflation report in what has commonly been dubbed as “Super Thursday”.

The Bank of England is almost certain to cut its growth forecasts, with most quarters suggesting we’re likely to see the largest downgrade to a year-end growth projection on record, surpassing the 0.9% reduction following the collapse of Lehman Brothers in November 2008.

The Bank of England will dominate today. The interest rate announcement and release of monetary policy minutes at 12:00 noon UK time will be followed by Mark Carney’s press conference at 12:30.

EUR

Investors chose to ignore data out of the Eurozone yesterday, instead focusing on the better than expected news out of the US labour market. The single currency subsequently fell 0.3% against the US Dollar.

The final services PMI for the Euro-area was revised upwards for July, with the Eurozone economy appearing to weather the Brexit vote surprisingly well. The index registered 52.9 in July, up from the 52.7 quoted at the end of last month. Importantly the composite index also came in higher than the flash estimate at 53.2 compared to 52.9, with Italy and France both providing pleasant upward surprises.

Retail sales came in mostly as expected yesterday, growing by 1.6% in the year to June.

All attention will be on the Bank of England today. The Euro continues to be driven by external factors this week, with Friday’s nonfarm payrolls release crucial for the single currency.

USD

The Dollar recovered yesterday following a relatively impressive set of economic data, ending 0.15% higher.

Alongside yesterday’s encouraging labour data, the US services PMI from Markit rose more than expected in July, increasing to 51.4 from 50.9. Contrastingly, the non-manufacturing PMI from ISM was a slight miss at 55.5 versus the 55.9 that was expected. This remains a very solid number and points towards an acceleration in economic growth in the third quarter following the disappointing reading for Q2.

Despite yesterday’s data, implied probability of a September Federal Reserve rate hike remains around a lowly 14%, far too low in our opinion.

Friday’s labour report dominates announcements in the US this week. Consensus is for a number around the 180,000 level, with unemployment forecast to fall back to 4.8%.

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