Sterling Dips As BoE Decision Nears
The Pound eased against most of its major pairs yesterday, as focus shifted to the Bank of England’s meeting, with traders eagerly awaiting clues about negative interest rates. The BoE is expected to keep rates at 0.10% and its pace of monthly bond of purchases £845 billion as the speedy vaccine roll out has cooled calls on the bank to provide further support. The policy decision will be accompanied by the central bank’s report on the potential impact of adopting negative interest rates that could move FX markets.
Sterling currently stands on a slippery ground near the 1.3585 mark with quotes dropping for the 5th consecutive day whilst against the Euro finds itself at the 1.1325. On a more positive note, the UK reached the 10 million milestone mark for vaccinations and is in the top-tier of the global jab race, this is helping underpin support in the UK currency.
US ADP employment data recorded an increase in private-sector employment of 174,000 for January after a revised 79,000 decline for December and above market expectations of 50,000. The ISM non-manufacturing index strengthened to 58.7 from 57.7 previously and above consensus forecasts of 56.8. New Orders also increased at a faster pace, although production growth slowed slightly. After a contraction in December, there was a significant increase in employment for the month. The employment data overall provided some optimism over Friday’s payrolls report.
US Markets continued to monitor US fiscal policy developments closely. President Biden indicated that he was willing to limit the eligibility criteria for individual cheques which may make it easier to broker bipartisan agreement within Congress. There were also procedural votes to accelerate the process which underpinned sentiment.
US long-term bond yields moved higher with the 30-year yield increasing to 11-month highs above 1.9% which provided some dollar support, although short-term yields remained at low levels. Chicago Federal Reserve President Evans stated that he was optimistic over the outlook, but that inflation was too low. He also stated that it was critical that the Fed sees through temporary price increases and not even think out adjusting policy.
The Euro continues to struggle for upside traction despite signs of seller fatigue around the 1.20 area. With Euro bulls remaining sidelined, better than expected US data is pushing yields higher and showing signs of an economic recovery.
On Wednesday, former European Central Bank President Draghi accepted the Italian President’s offer to form a government which seemed to sooth the market but it is still unclear if he will be able to muster a majority. Continuing concerns regarding the Eurozone’s slow coronavirus vaccine delivery was also weighing on the single currency.
The pair could drop below 1.20 unless the Eurozone Retail Sales data for December shows a significant rise in consumer spending.
Data to watch
07:00 – GBP – Asset Purchase Facility
07:00 – GBP – BOE Monetary Policy Report
07:00 – GBP – MPC Asset Purchase Facility Votes
07:00 – GBP – MPC Official Bank Rate Votes
07:00 – GBP – Monetary Policy Summary
07:00 – GBP – Official Bank Rate
07:00 – GBP – BOE Gov Bailey Speaks
08:30 – USD – Unemployment Claims