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BoE Deputy Governor gives nothing away as rate verdict nears

Today’s macro highlights:

  • EUR - Markit Eurozone PMI (July)
  • GBP - CBI Industrial Trends Orders (July)
  • USD - Markit PMI (June)

BoE Deputy Governor gives nothing away as rate verdict nears

We saw a relatively quiet start to the week as markets continued to digest the latest from Donald Trump. One agenda item that did have the potential to provide some direction was comments from Ben Broadbent, in what was the last Bank of England speech ahead of the close period before next week’s much anticipated interest rate verdict. Other than saying he hadn’t made up his mind as to how he would be voting, little was apparently given away regarding the short term intentions of the MPC. Unsurprisingly there was no fresh support for Sterling arising off the back of this and the waiting game continues.

Eurozone PMI readings are set for release between 8am and 9am BST this morning. It’s arguably better to look past the country-specific numbers and instead focus on the composite reading for the currency bloc as a whole, which is due at 9am. Expectations are for a modest decline month-on-month, something which is going to add weight to the idea that the ECB cannot afford to wind down its QE scheme as quickly as may have been hoped for and it does seem as if a degree of lethargy is already creeping in here. With this in mind, any better than expected reading has the potential to give the common currency a quick boost.

Data from the UK today is again subdued although the CBI’s Industrial Trends readings at 11am BST could provide something for markets to work on in the short term. As noted above, the focus now will be very much on whether the Bank of England delivers that long-awaited rate hike next week. There has been an hawkish overtone emanating from the Bank for some time, but it’s imperative that rates are hiked to free up some room for stimulus when the next economic slowdown hits. A shortfall in the CBI’s readings today could however be sufficient to call the prospect of quick policy tightening into question and send the Pound tumbling as a result.

There’s also PMI data due from across the Atlantic today at 2.45pm BST. On the basis this is a forward-looking indicator, it will take on added significance as any emerging caution over the fall-out of higher interest rates and trade tariffs will be closely followed. Rising inflation creates a short term need for the Federal Reserve to keep hiking interest rates, but any early indications as to just how aggressive they will need to act in 2019 could provide some direction for the US dollar.

The pair has drifted a little lower following Friday’s jump, but downside pressures are limited. The market craves more clues over the Bank of England’s actions next week, but given the absence of fresh data points, these will be difficult to find.

Those gains off the back of Trump’s comments on Friday have been gradually unwound, with markets looking for the next piece of substantive data. The ECB’s interest rate call on Thursday is very much in focus when it comes to comments over QE tapering, but the PMI data has the potential to provide meaningful direction in the short term.

The Pound managed to post some modest gains yesterday, but further upside potential could well be capped until we have further indications over how either the ECB or BoE will act regarding monetary policy in the near term. It’s the Bank of England that has the upper hand when it comes to a quick win if we see a hike next week, but the market has certainly been disappointed before.