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Handsome rogue Carney hoodwinks the markets again

Handsome rogue Carney hoodwinks the markets again

Sterling rebounded yesterday as the Bank of England Monetary Policy Committee (MPC) decided to hold interest rates at 0.5% with a vote of 8-1. This came as a surprise as the markets had priced in a 0.25% reduction after Mark Carney has signposted a rate cut only three weeks ago.

The Pound rallied sharply following the decision with a brief move above 1.3450 against the Dollar, and versus the Euro it found resistance near 1.2050. However, the Pound drifted lower following the meeting minutes revealing that the committee thought that a rate cut and monetary stimulus were likely this summer. Overnight, the rally reignited and GBPUSD opened above 1.3350 this morning.

Theresa May is set make her first official visit today. She will be meeting Nicola Sturgeon in Edinburgh for talks on the future of the union. The Scottish government is seeking a separate deal with the EU after Britain voted to leave; the majority of Scots had voted to stay. Until this issue has been put to bed, it will cause further political uncertainty and will weigh on the Pound. However, today’s headlines will be dominated by the sad events that occurred in Nice.

There was strong data from the States yesterday as Producer Prices rose faster than expected in June, and there were strong increases across most goods and services components. Headline PPI rose 0.5%, whilst Initial Jobless claims printed lower than expected at 254k. Overall, the data indicates a robust labour market and signals a gradual rise in inflationary pressure which should underpin confidence in the medium term.

The US Data calendar is busy again today with CPI inflation data and retail sales data for June. Also, the Empire State Manufacturing Index and Industrial Production figures will be released along with the Preliminary University of Michigan Consumer Sentiment Index. This will likely cause volatility in the Dollar towards the end of the European trading session today.

The Euro weakened versus the Pound during yesterday’s European trading session as data from the UK came in positive, overpowering the single currency by 1.68% in the process. The Euro ended the day at around the 1.2011 levels and will look to bounce back this morning as we have the Eurozone Trade Balance Figures followed by the Consumer Price Index figures for June.

Data to Watch: 10am EUR Trade Balance, EUR Consumer Price Index MoM. 1pm GBP Bank of England Governor Carney’s speech. 1.30pm USD Retail Sales, USD consumer price index MoM, Empire State Manufacturing Index. 2.15pm USD Industrial Production MoM.

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