Bank of England unanimously votes to surprise no one
There were no surprises yesterday as the Bank of England voted in favour of keeping interest rates at 0.50%. For the second successive month this came in as a unanimous vote. Interestingly, there were very few comments on the chance of further cuts, as plans remain for the interest rate to rise over the medium term.
The UK referendum appears to be the biggest hurdle for the Monetary Policy Committee, as fears of a ‘Brexit’ overshadow any gains made by Sterling. Cable has opened this morning at 1.4450 after showing strength in the overnight market. A quiet data day for the UK today means that we are unlikely to see much change from the recent upward trend. All eyes will be looking forward to Tuesday’s CPI inflation data.
The Dollar continued to weaken against all major currencies yesterday, clearly still feeling the effects of the more dovish than expected Federal Open Market Committee statement on Wednesday.
The US labour market does look to be strengthening however, which helped to trim some of the losses against the Pound and the Euro. Initial Jobless claims were slightly better than expected – 265k against the market consensus of 268k, although continuing jobless claims rose. An increase in job openings, 5.54 million from the previous 5.28 million, suggests a firm labour market.
Cable opened yesterday at 1.4253 and broke through the 1.4500 level for the first time in four weeks. The positive US data put an end to the upward trend and the pair fell back to open this morning at 1.44752. EURUSD opened yesterday at 1.12128 and the pair reached as high as 1.13425 in the morning session as the Dollar sell off intensified. The Dollar did claw back some of the losses and opened this morning at 1.13148.
Eurozone inflation is starting to rise with Euro Core Consumer Price Index printing above expectations – it was at 0.8% for February. The German Producer Price Index, released this morning, shows commodity inflation is still falling. The Euro trade balance showed a seasonally adjusted surplus of 21.2 billion Euros in January. Sterling gained 1.21% versus the Euro over lunchtime yesterday and apart from the European labour cost for Q4 there is no significant data due today.
Data to watch: 7am German CPI February. 10am Euro Labour Cost Q4.