Bailey’s on ice this Xmas for the BOE
The final UK third-quarter GDP growth was revised up to 0.4% from 0.3% previously with annual growth at 1.1% from 1.0%. Bank of England Monetary Policy Committee member Haskel, who voted for an interest rate cut at the December policy meeting, stated that recent data justified a looser monetary policy and cutting interest rates now would act as an insurance against rates getting stuck near zero in the near future. He also stated that a slow and gradual increase in rates may be required if the path to a post-Brexit trade agreement is smoother than he expects.
The government confirmed that Andrew Bailey would be appointed as the Bank of England Governor next month, although there was a little overall market impact. The House of Commons approved the EU Withdrawal Bill second reading and it will return to parliament for further scrutiny in early January ahead of the end-January EU exit.
Sterling drifted to test 1.3000 against the dollar and although it recovered ground against the Euro as trade concerns remained significant.
The final reading of third-quarter US GDP was unchanged at 2.1% and in line with market expectations. The core PCE prices index increased 0.1% for November with the year-on-year at 1.6% from a revised 1.7% and in line with consensus forecasts. The University of Michigan consumer confidence index was revised marginally higher to 99.3 from the flash reading of 99.2 with a dip in expectations offset by increased confidence in current conditions.
There was no significant shift in interest rate expectations with futures markets indicating less than a 10% chance that the Federal Reserve would cut interest rates during the first quarter of 2020. The dollar was unable to make any impression on commodity currencies amid hopes for stabilisation in the global economy, but against the Euro remained on the defensive and declined to lows around 1.1075.
German yields were initially little changed during Friday, but the Euro was unable to gain any traction and a dip below 1.1100 against the dollar further eroded sentiment. Yields declined into the European close which further eroded market sentiment.
The Euro remains on the defensive and declined to lows around 1.1067. There was a marginal recovery this morning, as the Dollar drifts lower in tight ranges. As of writing, The Euro finds itself at the 1.1085 level.