U.K. GDP figures will give clues as to a potential interest rate rise in November, whilst Canada’s interest rate is predicted to remain at 1%

Oct 24 • Mind The Gap • 73 Views • No Comments

There are two high impact, economic calendar news events, which traders need to monitor carefully on Wednesday October 25th. The first concerns the U.K., whose official statistics body the ONS, will be publishing the latest Q3 quarter’s GDP growth figure. The second involves Canada’s central bank, who will be revealing their interest rate decision. Both releases have the potential to impact the FX market, for different reasons, but with one common theme; interest rates.

The U.K. Monetary Policy Committee is the body within the Bank of England, who’ll reveal their latest decision, regarding the U.K. base rate, on November 2nd. The consensus is for a rise from the current 0.25% to 0.5%, potentially the first rise in ten years and restoring the rate to that which existed, before the referendum decision in June 2016. However, the deputy governor of the central bank Sir. Jon Cunliffe has, on Tuesday morning, suggested that the U.K. economy may not be strong enough to weather an interest rate rise, creating the suspicion that he may have doubts regarding the consensus forecast figure for growth to come in at 0.3% for Q3, when the figure is revealed at 8:30 GMT. The central bank is stuck between the proverbial rock and a hard place, as a rate rise is necessary to dampen inflation growth by strengthening the pound’s value, as opposed to the U.K. economy being in a position to accept a rise.

Should this GDP figure miss, or only match expectation, then analysts will waste no time in calculating that the annual GDP for 2017 may come in at 1% (or just over), receding from the current YoY figure of 1.5%, and is therefore unlikely to be strong enough to support a rate rise. Or perhaps only the one small 0.25% rise in November, as opposed to the first in a series of rises, over the next twelve months. Sterling may come under pressure as a consequence. However, should the forecast beat expectations, coming in at perhaps 0.4% growth, then the reverse reaction could be possible; sterling might rise.

There is little consensus for Canada’s central bank, the BOC, to announce a rate rise on Wednesday at 14:00 GMT. Having recently surprised the markets, when it raised the rate from 0.75% to 1% on September 6th, the governor of the Bank of Canada and his team will presumably need to monitor the impact of the rise, before considering further increases. Whilst the rate decision appears to be a foregone conclusion, investors and analysts will focus on the monetary policy statement delivered by the BOC immediately as the rate decision is announced. They’ll be looking for forward guidance from the bank, in relation to further rate adjustments and a report regarding the impact the September 0.25% rise has had in the short term. It’s this report, rather than the interest rate decision, which therefore has the potential to impact the FX market.

U.K. KEY ECONOMIC METRICS

GDP growth 0.3%
GDP growth 1.5% (annual)
Base interest rate 0.25%
Inflation rate 3% (CPI)
Unemployment rate 4.3%
Retail sales YoY 1.2%
Services PMI 53.6

CANADA KEY ECONOMIC METRICS

GDP growth 1.1%
GDP growth 3.7% (annual)
Interest rate 1%
Inflation 1.6% (CPI)
Unemployment 6.2%
Retail sales YoY 6.9%
Manufacturing PMI 55

 

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