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Slowdown? What slowdown?

Slowdown? What slowdown?

Yesterday’s highlight came from the UK’s Bank of England (BoE) decision to leave interest rates unchanged at 0.25%. This was no surprise to the market, and Sterling’s value remained muted against all major currencies in the short term, but fell against the Euro and the Dollar throughout the rest of the European trading session.

The one stand out phrase that divided opinion was, “The Committee now expects less of a slowing in UK GDP growth in the second half of 2016”. This alone caused heated debates on trading floors as to whether the Post-Brexit recession risk was over-exaggerated or not. Analysts are still expecting a rate cut from the Bank of England before the close of the year, but they see it as a close call depending on the incoming economic data.

Retail Sales fell to -0.2%, as anticipated, and the drop was not as bad as expected. Sterling held above 1.3200 against the Dollar until the US trading session opened, where the UK currency lost ground against all major currencies.

In an otherwise uneventful day for the Euro, Eurozone CPI remained unchanged yesterday at 0.2% – bad news for the area. The inflation rate remains significantly lower than the EU target. There is no data due from Euroland today, so expect market sentiment to guide the single currency.

The large number of data releases from the US yesterday meant that there was a rather mixed bag of results. Core Retail Sales printed down along with monthly PPI figures and the Empire State Manufacturing Index, but Philly Fed Manufacturing Index and Unemployment Claims beat expectations significantly. The result of this was overall strength for the Dollar.

Later in the European trading session, US Industrial Production data fell down to -0.4%. This is significantly worse than expected, however GBPUSD continued its downward trend to fall below 1.3200. The only data due today is Dollar based, so expect trading around the US currency to increase with the CPI data announcement at 1:30pm. After yesterday’s mixed results, volatility will be extreme if the data fails to meet expectations.

Data to Watch: 1:30pm USD CPI MoM. 3pm USD Prelim UoM Consumer Sentiment.

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