Rate setters in spotlight
Nationwide prices rose 0.5% in January with the year-on-year increase rising to 1.9% from 1.4%. Market caution persists in light of Michel Barnier’s forecast for cliff-edge talks on trade and fisheries at the end of 2020. The European parliament rubber-stamped Brexit withdrawal terms and the UK will leave as scheduled on Friday. Sterling failed to make ground especially with a lack of commitment ahead of today’s Bank of England interest rate decision and policy statement. The Pound did find some support below 1.3000 on the Dollar and closed just above, while the Euro slipped slightly to near 1.1835.
Futures markets are still signalling a 50% probability that the Monetary Policy Committee will cut interest rates to 0.50%. The vote split, accompanying statement and forward guidance will all be very significant today. Overnight, Lloyds business confidence strengthened sharply but Sterling failed to make any gain at market open.
Strong consumer confidence had the USD up against other major currencies yesterday.
All eyes were pointed to the Federal Reserve (Fed) as the market awaited the interest rate announcement and the press conference with Fed Chair Jerome Powell. The Fed left the target range for the federal funds rate unchanged at 1.50%-1.75%. Powell acknowledged stabilising global growth and reduced uncertainty around trade policies but noted uncertainties about the outlook still remain. The death toll from the Coronavirus rises and more cases are reported and Powell also said yesterday that the US is carefully monitoring the situation but that it is “too early” to determine its impact.
The Euro remains under scrutiny in the second half of the week whilst hovering around the key 1.10 figure against the Dollar. In the meantime, growth fears following the Wuhan coronavirus appear somewhat mitigated and seem supporting the improved mood in the risk-associated market, at the same time sustaining the bounce off recent lows.
Later in the day, the focus will switch to the German labour market report ahead of advanced inflation figures for the month of January. Whether data hits or misses expected figures, will likely move the common currency in either direction.
Data to watch
All Day – EUR – German Prelim CPI
12:00 – GBP – BOE Monetary Policy Report
12:00 – GBP – MPC Official Bank Rate Votes
12:00 – GBP – Monetary Policy Summary
12:00 – GBP – Official Bank Rate
13:30 – USD – Advance GDP
13:30 – USD – Advance GDP Price Index