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UK interest rates unlikely to be raised this side of referendum

UK interest rates unlikely to be raised this side of referendum

Once again, positive UK data failed to impact the market yesterday as the EU referendum looms. UK average earnings index printed at 2%, up from the predicted 1.7%, whilst UK unemployment fell from 5.1% to 5%. Despite this, Sterling continued to fall in value as three of the last five EU referendum polls have shown a lead for the ‘Leave’ camp.

Today will see some significant data released from the UK. First, monthly retail sales are due for May, with general market consensus expecting a reduction from 1.3% to 0.3%. Following this, the Monetary Policy Committee (MPC) Official Bank Rate Votes will be announced along with an overview of the monetary policy. This close to the EU referendum it is very unlikely that interest rates will move. After the European close Bank of England (BoE) governor Mark Carney is due to speak at Mansion House Bankers’ Dinner.

As expected, the Federal Reserve left interest rates unchanged at their policy meeting yesterday. The Fed stated that consumer spending has improved, but highlighted that the slowdown in labour market growth was a concern. The outlook was generally optimistic, however the lack of commitment to higher rates put the Dollar under selling pressure. Fed Chair Janet Yellen did not rule out a July rate hike, and did state that the UK referendum was one reason for leaving the rates unchanged at this meeting.

Data wise, there was some positive news as the Producer Price Index (PPI) and the Empire State Manufacturing Index both beat expectations. However, Industrial Production declined for May, coming in at -0.4% against the market consensus of -0.2%.

GBPUSD opened Wednesday morning around the 1.4100 level, and drifted up towards the 1.4200 level in the European session on Pound strength. It opens this morning 1.4204.

The Euro remained relatively unchanged versus Sterling during yesterday’s European trading session as the UK’s EU referendum has raised concerns over whether the Eurozone can withstand the pressure of Britain leaving the UK.

The single currency failed to make gains against the Pound despite the April trade balance figures coming 6.4B better than expected, at 28B. The Euro ended the day against Sterling around the 1.2604 levels.

The Eurozone has a busy schedule ahead today as May Consumer Price index and Core consumer price index figures are due which is to be followed by the Eurogroup meeting.

Data to Watch: 9:30am UK Retail Sales month-on-month. 12:00pm UK MPC Official Bank Rate Votes, Monetary Policy Summary. 1:30pm US CPI month-on-month, US Core CPI month-on-month, US Unemployment Claims, US Current Account. 9:00pm BoE Governor Carney Speaks.

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