BoE MPC votes 7-2 to keep rates on hold yesterday, however the Bank is still gearing up for May rate hike

Mar 23 • Morning Roll Call • 983 Views • Comments Off on BoE MPC votes 7-2 to keep rates on hold yesterday, however the Bank is still gearing up for May rate hike

In its latest monetary policy meeting, held yesterday, the BoE MPC voted 7-2 in favour of leaving benchmark interest rate unchanged at 0.50%. Meanwhile, it was a unanimous vote to keep asset purchase facility at £435 billion and corporate bond target at £10 billion. All in all, the statement from the Bank of England’s latest meeting keeps a May rate hike firmly on the table. The Bank has said “ongoing tightening” will likely “be appropriate”, although interestingly policymakers have opted against sending a stronger/more explicit rate hike signal. The BoE hasn’t commented on this week’s Brexit breakthrough. Instead, it continued to emphasize the overall process as the “most significant influence” on uncertainty. In addition, the Bank has made it pretty clear at recent meetings that wage growth will be a deciding factor in its decisions about impending rate hikes.
Furthermore, with overall retail sales of UK growing at just 1.1% year-on-year (excl. fuel), it appears that consumers are still holding back on non-essential purchases. This echoes what the data from the British Retail Consortium and Visa has been saying, with both pointing to a further slowdown in spending. In theory, though, prospects should improve for retailers over the next few months. Inflation is beginning to ease now that prices have more-or-less adjusted to the new value of the pound, while wage growth has shown a surprising amount of energy of late. But while the combination of these two factors means the spending squeeze has passed its worst, incomes in real terms don’t look set to rise meaningfully anytime soon. Partly with this in mind, consumer confidence remains stubbornly low (not far off the Brexit lows), which is particularly stark when compared to Europe and the US, where shoppers are the most optimistic they’ve been since the early-2000s.
Yesterday we also saw the US initial jobless claims, as well as the German and Eurozone flash PMIs. Initial claims remained subdued during the week ending 10 March and their four-week moving average continued to fall gradually, highlighting continued strength in the labor market. The insured unemployment rate sits at 1.3% — its historical low. Labor-related indicators of the business surveys for March so far suggest labor market strength remains firm. While the German and Eurozone PMIs, both missed the forecast. The forecast for the Eurozone flash manufacturing PMI showed 58.1 for March, slightly lower than previous month’s reading of 58.6, and the Eurozone services sector was also expected to come in a tad weaker at 56.0 in the reported month, down from 56.2 booked in February. The actual results for the manufacturing PMI and flash services were 56.6 and 55.0 respectively. Regarding Germany, flash manufacturing PMI came at 58.4 and flash services at 54.2. The negative results have caused EUR/USD to head back towards the 1.23 handle, which if broken would lead towards 1.2240 horizontal support.
Concerning the most significant data for today, it comes in the US with flash February durable and capital goods orders data, along with February new home sales data. A number of Fedspeakers are also scheduled to speak including Bostic, Kashkari and Rosengren. The final day of the week also marks the deadline for the US government needing to pass a spending bill. Finally it’s worth noting that Italian parliament will reopen following the March 4th election. –FXStreet
EUR/USD

The EUR/USD is lifting in a fresh round of Dollar-selling, trading into the 1.2340 level ahead of the European market session. The Euro faltered in Thursday’s action following a round of disappointing Markit PMIs for the Euro region. –FXStreet
GBP/USD

GBP/USD fell from 1.4218 to 1.4076 yesterday, creating an inverted bearish hammer on the daily chart even though the odds of a Bank of England (BOE) rate hike in May increased to 72 percent from pre-BOE level of 66%. –FXStreet
USD/JPY

The USD’s bounceback from sudden Yen strength as trade war fears settle over markets once again has ended, with the USD/JPY losing the 105.00 once more and testing lower, currently trading near 104.90. –FXStreet
Gold

Gold is trading at around the 1330 mark, virtually unchanged so far on the day. On Wednesday the Fed failed to surprise the market. As a matter of fact, the market was surprised to see only two more rate hikes in 2018 as opposed to three. The market reaction was one-sided across the board: sell USD. –FXStreet

 

KEY ECONOMIC CALENDAR EVENTS FOR March 23rd

USD FOMC Member Bostic Speaks
CAD Core Retail Sales m/m
CAD CPI m/m
CAD Common CPI y/y
CAD Retail Sales m/m
GBP MPC Member Vileghe Speaks
USD Core Durable Goods Orders m/m

 

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