Sterling slumps, as BoE keeps interest rate at 0.25% and lowers U.K. growth target, euro rises, gold inches up

Aug 4 • Morning Roll Call • 1615 Views • Comments Off on Sterling slumps, as BoE keeps interest rate at 0.25% and lowers U.K. growth target, euro rises, gold inches up

As widely predicted, the UK’s BoE division, the monetary policy committee, revealed they’d voted to keep the UK’s interest rate at a record low of 0.25%. This was a rate implemented as an emergency policy, immediately after the UK’s voters elected to leave the European Union in June 2016. As has become customary, what’s termed the “inflation report”, which covers many areas of the central bank’s policy and not just its inflation control remit, accompanied the base rate decision. The report, delivered by the BoE governor Mark Carney, downgraded the bank’s projection of UK growth in 2017 from 1.9% to 1.7%, whilst (overall) painting a far gloomier picture of the UK’s economic performance, through to 2019.

As a consequence of the 6-2 MPC vote to keep the base rate unchanged and the inflation report, sterling sold off sharply versus its main peers; having risen through R1 early in the London session, to reach an eleven month high of 1.3267, GBP/USD fell through S3 to reach a low of 1.3112, eventually closing out down circa 1% on the day. EUR/GBP breached R3, rising by circa 1%, to close the day out at approx. 0.9036. Versus AUD, JPY, CAD, and NZD, a similar pattern of sterling losses was repeated, only versus CHF was the GBP loss less, GBP/CHF price fell through S2 at one stage, to recover to 1.2732, a 0.4% loss on the day.

In other European news the UK’s services and composite CPIs marginally beat forecasts, whilst the Eurozone and Germany’s composites marginally missed forecasts. Eurozone retail sales beat forecasts, growing by 3.1% YoY, versus the expectation of a 2.5% rise. European indices experienced mixed fortunes on Thursday; DAX closing down 0.22%, CAC up 0.46%, STOXX 50 up 0.20% and FTSE 100 up 0.85%, the London index rising as a consequence of the fall in the value of sterling, given the majority of the 100 companies are USA owned. EUR/USD ended the day at 1.1868, up circa 0.2%

Earlier in the day the Aussie had sold off versus several peers, partly as a consequence of June’s trade balance collapsing to A$856m, from A$2024m in May. AUD/JPY breached S2, closing out at circa 87.49, down circa 0.6%. Yen enjoyed positive sessions versus the majority of its peers, USD/JPY breaching S2, finally recovering marginally to end the day at circa 110.15, down approx. 0.6%.

From the USA the latest weekly unemployment claims were announced; claims fell to 240k, whilst continuous claims rose to 1968k, perhaps suggesting jobs are becoming more difficult to find in the country. The Markit services PMI improved to 54.7, the ISM non manufacturing composite came in at 53.9, missing expectations. Factory orders came in right on forecast, at 3% growth, whilst durable goods orders showed a considerable improvement, at 6.4%. The DJIA maintained its 22,000 height, closing up 0.04% on the day. The SPX closed down 0.22%, with the NASDAQ down 0.35%. WTI oil closed the day out at approx. $49.00, down circa 0.6%. Gold ended the day at approx $1267 per ounce.

Significant economic calendar events for August 4th, all times quoted are London (GMT) time

06:00, currency impacted EUR. German Factory Orders n.s.a. (YoY) (JUN). The forecast is for a rise to 4.4%, from the 3.7% registered in May.

08:10, currency impacted EUR. Markit Germany Retail PMI (JUL). There is little expectation that the reading of 54.5 recorded in June, will be altered significantly.

12:30, currency impacted CAD. Unemployment Rate (JUL). The rate is predicted to remain at the June rate of 6.5%

12:30, currency impacted USD. Change in Non-farm Payrolls (JUL). The expectation is for a print of 180k, a reduction from the 222k jobs recorded and created in June.

12:30, currency impacted USD. Unemployment Rate (JUL). USA unemployment is forecast to fall back to the sixteen year low of 4.3%, from the 4.4% rate registered in June.

12:30, currency impacted USD. Average Hourly Earnings (YoY) (JUL). Earnings are forecast to fall to 2.4%, from the reading of 2.5% in June.

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