A dovish BoE sees Sterling tumble

Yesterday’s markets

6th November 2015

  • German Factory Orders m/m: -1.7%
  • UK Halifax HPI m/m: 1.1%
  • ECB President Draghi Speaks
  • UK BoE Inflation Report
  • UK MPC Official Bank Rate Votes: 1-0-8
  • UK Monetary Policy Summary
  • UK Official Bank Rate: 0.50%
  • UK BoE Gov Carney Speaks
  • US Unemployment Claims: 276K

The Bank of England took center stage yesterday on “Super Thursday” as they released the quarterly inflation report, the meeting minutes and rate decision. Interest rates were kept on hold at a record low of 0.5% but the tone of the report was unexpectedly on the dovish side especially given the positive data of late.  MPC members vote remained 8-1 as Ian McCaferty kept his hawkish stance in favour of raising rates, but the pound tumbled against the greenback and the euro as the BoE cut growth forecasts and inflation for 2016.  The report now forecasted that inflation would remain below 1% during the second half of 2016 way below the policy makers target figure of 2%, which pushed back the first anticipated rate rise in early 2016 now back to the latter half of next year.

Mark Carney, the Governor of the Bank of England spoke shortly after the report was released citing that weakening global growth will weigh on the UK economy, as oil and commodity prices continue to drag down energy prices. This caution from Mark Carney about the slowdown in emerging market economies was the main reason why the BoE forecasted that inflation will remain below 1% until the second half of the year.  The dovish tone from the central bank yesterday was not expected, as only a few months ago, Mark Carney had identified that the turn of the year was a likely point at which a rate rise could come into a sharper relief.  It seems that markets are again getting mixed messages from this forward guidance but the governor managed market expectations stating that ‘guidance is an expectation, not a promise’, at the prospect of low rates until 2017.

Today’s markets

5th November 2015

  • CHF Foreign Currency Reserves
  • UK Manufacturing Production m/m
  • UK Trade Balance
  • CAD Employment Change
  • CAD Unemployment Rate
  • US Average Hourly Earnings m/m
  • US Non-Farm Employment Change
  • US Unemployment Rate

Today the focus switches to the US as they release the monthly unemployment rate and the non-farm employment figure.  All markets will be watching the employment figure which is expected to come in at 179k, as this gauge is being watched by the Fed and a figure above the 200k would add more weight for the Fed to raise interest rates come the December meeting.  Volatility for the greenback will be seen as this data is released at 1.30pm today.