Interest Rates Held

By Simon Eastman

Yesterday we saw Sterling drop significantly across the board as the latest Bank of England policy meeting surprised markets.

In the lead up to yesterday’s meeting policy committee members had been giving the Hawkish impression we would be seeing a rise in interest rate for the UK, from 0.1 percent to 0.25 percent.

With the pound falling from grace as it peaked last week, the expectations for an interest rate rise gave sterling some legs to make back some of those losses, testing resistance levels. But as midday struck, the Doves spoke, with a “no change” reading announced and the pound fell off a cliff, plummeting over 1 percent against cable and the single currency euro, remaining at these levels for the rest of the day’s trading.

The Bank’s credibility in question given the almost certain expectation, as in the end only 2 of  the 9 members voted to hike and just 3 votes to halt early their current bond buying program. In the subsequent press conference, it was mentioned they wanted to gather more labour market data following the end of the furlough scheme and it was felt inflation would  sink back to the desired 2 percent target within their targeted timescale.

A rate hike in the future wasn’t completely discarded but it was made clear, rates would only increase in the future if the economics continued to move in the desired direction.

With the pound on the back foot, buyers beware today is full of non UK data releases which could further go against the pound. German industrial production and a speech by ECB member De Guindos are early releases ahead of the EU retail sales at 10am. ECB member Panetta makes a speech at 11am before we cross the pond for US the key non farm payrolls, unemployment and average earnings data plus for any Loonie buyers, we also get Canadian unemployment and average earnings plus PMI data.

Plenty of top line data releases to contend with whilst sterling still reels from the Bank’s lacklustre show yesterday, so get in touch with one of the team this morning to discuss your upcoming currency requirement and the contract options available to you.