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Rate cut hints

Rate cut hints

GBP

The Bank of England’s Silvana Tenreyo stated that the UK labour market was very tight, risks were tilted to the downside and favoured a rate cut if things deteriorate. Sterling drifted  lower and the Euro settled near 1.1765 while there was selling interest near 1.3100 against the Dollar. Futures market data recorded an increase in bets on the Pound rising, now at a peak since May 2018 with more than 16,000 contracts. With the bets in place economic  fundamentals will improve for Sterling to rise. 

Over the weekend, fellow BoE member Gertan Vlieghe stated that he will vote to cut interest rates if the data doesn’t improve, although it wouldn’t take much to swing the decision one way or another. Business confidence surveys will take on added significance in the short term. A quarterly financial-sector survey recorded the first gain for 4 years, but Irish Foreign Minister Coveney stated that the EU would not be rushed on trade talks. Sterling opens lower this morning; 1.3020 against the Dollar and 1.1695 against the Euro.

USD

The Dollar held firm into the monthly US jobs report release and against the Euro edged below 1.1100. December non-farm payrolls increased 145,000 compared with consensus forecasts of 165,000 and there was a small downward revision for November to 256,000 from the 266,000 reported previously. There was a dip in manufacturing jobs for the month and transport jobs also declined, but there was a strong increase in retail jobs which may be reversed next month. Unemployment held at 3.5%, in line with expectations, as the participation rate was also static. Average hourly earnings increased 0.1% compared with expectations of 0.3% which cut annual growth significantly to 2.9% from 3.1%. 

The data reinforced expectations that the Federal Reserve (FED) could keep interest rates on hold for an extended period, especially as the slowdown in wages growth will tend to dampen potential inflation pressures. With evidence that the Fed will tolerate a very tight labour market as long as inflation remained subdued, the data reinforced expectations that a rate hike was unlikely. 

 

 

EUR

The Euro is adding to Friday’s gains against the Dollar and is bouncing to the 1.1130 area. The pair is up for the second session in a row this morning and remains underpinned by rising optimism in light of the imminent signing of Phase One of the US-China’s deal later this week.

In addition, the market continues to digest Friday’s Non-farm Payrolls lower than expected figure, putting the Dollar under further downside pressure at the beginning of this week. As of writing, the common currency sits around the 1.1225 figure against its Dollar counterpart with nothing scheduled on the Euro docket for today.  

 

 

Data to watch

09:30 GBP – GDP

09:30 GBP – Manufacturing Productions 

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