BoE keeping options open
The Bank of England held interest rates at 0.1% yesterday following its latest policy meeting with the ceiling of bond purchases under the QE programme also maintained at £745bn. Both decisions were in line with consensus forecasts with a 9-0 vote for no action. The bank stated that recent developments in the economy had been slightly stronger than expected but there was a high degree of uncertainty over the outlook and it was unclear whether the performance could be sustained.
The bank also noted further economic risks should there be a no Brexit trade deal and discussions had been had on the potential prospect of negative interest rates. Overall, there were strong expectations of further stimulus in November and increased speculation over negative rates. Sterling declined sharply with lows near 1.2865 against the Dollar and 1.0905 against the Euro.
Given the tension, surprisingly reassuring comments made from Chief EU Negotiator Barnier and Commission President Von der Leyen on wanting to get a Brexit deal agreed and the possibility still being there, although Barnier did follow those comments that the next few days would be crucial.
Overall sentiment still remains fragile, especially with scientific groups recommending a second, short coronavirus national lockdown. UK retail sales increased 0.8% for August, marginally above consensus forecasts with a 2.8% annual increase. Further Sterling volatility could be on the cards today as is stands the currency is currently trading around 1.2975 against the Dollar and 1.0940 against the Euro.
The dollar was unable to hold its gains amid underlying negative sentiment. Following the Federal Reserve (Fed) policy statement, there were strong expectations that interest rates would remain at extremely low levels for an extended period which continued to undermine sentiment.
US initial jobless claims declined to 860,000 in the latest week from a revised 893,000 last week, although this was above consensus forecasts of 85,000. Continuing claims declined to 12.63mn from 13.54mn previously. There was, however, a small increase in total claims when the pandemic assistance numbers were included.
The Philadelphia Fed manufacturing index edged lower to 15.0 for September from 17.2 previously and was in line with market expectations. There were stronger increase for new orders and shipments on the month and unfilled orders secured a marginal advance. Prices increased at a faster pace and there was a stronger increase in employment. Confidence in the 6-month outlook also improved on the month. Housing starts edged lower to an annual rate of 1.42mn from 1.49mn.
The Euro is currently still holding onto slight overnight gains against the Dollar, recovering from monthly lows of 1.1737 ahead of today’s trading session. The currency pair witnessed a good bout of both strength and weakness courtesy of the volatility in the Dollar across its main competitors.
The confirmation of deflation seeping back into the Eurozone combined with the continued rise in coronavirus cases also tempered the sentiment around the common currency as the Eurozone annualized CPI confirmed the -0.2% previous estimate.
Looking ahead, the Euro docket remains light, with the German Producers Price Index and Eurozone Current Account figures due for release.
Data to watch
07:00 – GBP – Retail Sales
15:00 – USD – CB Leading Index
15:00 – USD – Prelim UoM Consumer Sentiment