Bank of England send Sterling sliding
Despite seeing a brief reprieve courtesy of a better services PMI number yesterday, the pound fell sharply following the Bank of England’s decision interest rates and subsequent Quarterly Inflation Report. The Bank’s commitment to record-low rates was supported by 6 members of the board, with the same 2 members opting for an unchanged decision. While the rate decision itself wasn’t particularly surprising, the Bank struck a relatively relaxed tone with growth forecasts revised moderately lower and inflation projections still looking relatively benign. This contrasts with some of the more hawkish speeches and conferences given by a number of committee members since the last report in May – and as such, the pound has been marked down against both the euro and the US dollar.
GBP/USD still sits comfortably above the 1.31 mark, which will grant some reprieve to those looking to sell the pound (the pair sits a solid 10% above the post-referendum lows of 1.20), but the same can’t be said for euro buyers – a solid break below 1.10 in GBP/EUR will mark the lowest rate since 2009.
Dollar enjoys a modicum of peace and quiet
The dollar decline stalled somewhat yesterday, with little new news from the Oval Office and as markets gear up toward today’s Nonfarm Payrolls report. Jobs added are expected to have ebbed slightly lower in the month, with around 180,000 new roles seen being created. June’s particularly strong figure of 222,000 seemed slightly unjustified given the private sector payrolls reports and weekly jobless claims data – markets will be watching for any negative revisions to these for a broader picture of the labour market and the implications for the Federal Reserve.
What’s possibly more important for the US central bank in today’s release isn’t the headline jobs added number, but the overall unemployment rate. The labour force has been growing since its lows in the wake of the financial crisis and the jobless rate has been falling. As this pattern extends (which it’s expected to do tomorrow) the market will be getting closer and closer to full employment, more pressure on inflation and wage rises. This should give the Fed some confidence to continue tightening policy through rate hikes and balance sheet reduction over the medium term which they may highlight at the Jackson Hole Economic Symposium at the end of August.
The figures are due at 1330BST.
Trouble down under
After the kiwi dollar had a poor start to the week, its Australian counterpart mirrored the move overnight by dipping against most other currencies. The Reserve Bank of Australia cut their growth forecast for the economy this year, down from a range of 2.5-3.5% to a mere 2.0-3.0% and similar negative revisions were seen in their 2018 forecasts. While the release seems pessimistic, economic expansion at these levels still marks a growth rate that can’t be touched by the UK, US or most of the Eurozone.
Have a great day and a better weekend.