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BoE raises rates, but not hopes

BoE raises rates, but not hopes

GBP
UK PMI construction for July strengthened to 55.8 up from 53.1 in June, with notable strength in the residential sector contributing to beating the forecasts. But nobody noticed this.

 

The Bank of England MPC unanimously voted to raise interest rates by 0.25% to 0.75%. In the accompanying statement, the bank blamed the Beast from the East for a temporary economic downturn, but expects further gradual rises in rates given that domestic inflation pressures were gradually increasing.

 

Sterling strengthened immediately on the news but suffered a sharp retraction as Mark Carney stated that all bets are off should Brexit talks take a “deflationary path”. Political concerns were also a significant factor eroding Sterling sentiment.

 

The Euro pushed to around 1.1235 from lows near 1.1300, while there was a significant net decline to near 1.3000 against the strong Dollar.

 

EUR

 

The scorching heatwave that is sweeping through Europe, the UK and our trains this morning did nothing to warm up the EUR, with the EUR yesterday retracting slightly on concerns over German export outlook and Italian bonds and it found little support from global risk conditions. The Eurozone services PMI data is out today but consensus is that they will remain unchanged.

 

The big data today is the US nonfarm payrolls with the EUR seemingly on the retreat ahead of the data. The EUR could rally if the US data comes in way off consensus, but it is not expected to do so.

 

As mentioned above, the main data today for the Euro is the Markit Services PMI data but this should not provide too much volatility. All in all a very quiet start to the weekend for the Euro.

 

USD

 

The US Dollar strengthened against a basket of currencies as trade tensions flared again between the US and China. The dollar index moved to 2-week highs as sentiment towards other major currencies remained weak.

 

US initial jobless claims increased only marginally to 218,000 in the latest week from 217,000 previously and came in below consensus forecasts while there was a significant decline in continuing claims. The dollar index moved to 2-week highs on yield grounds as sentiment towards other major currencies remained weak.

 

Today’s main event is the US labour market report with the Non Farm Payrolls (NFP) number expected to be 190,000, slightly below the consensus estimate. The unemployment rate is scheduled to decline back below the 4% mark to land at 3.9%. We also see US non-manufacturing today, where a slightly lower reading than last time is expected, but still at a very high level in an historical context.

 

Data to watch:

 

09:00    EUR Markit Services PMI (Jul)

09:00    EUR Markit PMI Composite (Jul)

09:30    GBP Markit Services PMI (Jul)

13:30    USD Average Hourly Earnings (MoM) (Jul)

13:30    USD Labor Force Participation Rate (Jul)

13:30    USD Average Hourly Earnings (YoY) (Jul)

13:30    USD Nonfarm Payrolls (Jul)

13:30    USD Unemployment Rate (Jul)

13:30    USD Trade Balance (Jun)

14:45    USD Markit Services PMI (Jul)

14:45    USD Markit PMI Composite (Jul)

15:00    USD ISM Non-Manufacturing PMI (Jul)

18:00    USD Baker Hughes US Oil Rig Count

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