Sterling rose to a fresh eleven month high against the US Dollar this morning as investors braced for this afternoon’s Bank of England meeting.
The main event today, however, will be what has recently been dubbed as “Super Thursday”. The Bank of England will be announcing its interest rate decision while releasing the minutes of its meeting and its Quarterly Inflation report at midday today. Interest rates are almost certain to remain unchanged and investors will instead await the communications from policymakers, and press conference from Governor Carney, to gauge the possibility of an interest rate hike in the UK before the end of the year.
It will also be interesting to see how many of the bank’s monetary policy committee voted for an immediate rate increase. Three of the eight members voiced their support for an immediate hike at the previous meeting in June. However, with Kristin Forbes now no longer on the MPC and inflation surprising to the downside last month, Ian McCafferty and Michael Saunders are likely to remain the sole dissenters. A third vote for a hike today, which would most likely come from Chief Economist Andy Haldane, would catch the market by surprise and provide strong support for the Pound this afternoon.
Dollar hits fresh lows despite solid labour data
The US Dollar slumped to another 15 month low yesterday, despite some fairly hawkish comments from Federal Reserve member Mester and some solid economic data. Cleveland Fed President Loretta Mester voiced her support behind gradually increasing interest rates, despite recent weak inflation, suggesting that three hikes per year would be “appropriate”. Wednesday’s private sector employment data boded fairly well for tomorrow’s much more significant nonfarm payrolls number. The ADP employment change came in at a slightly below forecast 178,000 in July, although this was more than made up by a 33,000 upward revision to the June number.
Eurozone retail sales this morning are not expected to rock the boat, although a surprise in today’s composite PMI could shift the Euro. In the absence of any significant data shocks in the interim, the Euro will largely be driven by Friday’s nonfarm payrolls report in the next couple of days.
ECB bets ramp up, Eurozone producer prices increase in June
Continued bets that the ECB will soon announce a tapering of its QE programme sent the Euro to yet another two-and-a-half year high on the greenback yesterday. Producer price data provided further ammunition to this argument on Wednesday. The PPI increased by an above consensus 2.5% year-on-year in June, combined with an upward revision to May’s number. The latest services PMI from Markit and ISM’s non-manufacturing PMI from Markit will be the main data points today. As mentioned earlier, Friday’s nonfarm payrolls report remains the main market mover across the pond this week.