One more hawk at the Bank of England sees Pound scrabble higher

Today’s macro highlights:

  • EUR - Eurozone PMI (June)
  • USD - US PMI (June)

One more hawk at the Bank of England sees Pound scrabble higher

The big macroeconomic news for Thursday was the Bank of England’s latest call over monetary policy. No interest rate hike had been expected, but the market was looking for a signal that we could see a quarter point increase in the August meeting. As a result, news that a third member of the nine person panel was now voting in favour of a rate hike saw GBP/USD push higher, giving the pair its best day in over two weeks. The market is now pricing in almost a 70% chance that rates will rise in the summer.

It’s also worth noting that yesterday’s ‘Philly Fed’ - the Philadelphia Federal Reserve’s monthly manufacturing index - slumped to an 18 month low. This raised questions over the health of the US economy and served to knock back some recent dollar gains, too.

Otherwise, the week is set to finish on a relatively muted tone. We have a slew of PMI readings expected from across the Eurozone starting at 8am BST although the single best reference will be the 9am composite PMI number. This is expected to have softened a little month-on-month, but any decline that is too marked has the potential to reheat the debate about whether the ECB can afford to conclude its bond buying this year.

PMI data across the Atlantic will also be in focus, with manufacturing, services and composite prints all due at 2.45pm BST. It’s a similar story here, with a fractionally softer reading anticipated although unless we see a notable decline, it’s unlikely to distract from the dollar’s general dominance that’s being seen. The potential for US inflation to charge higher off the back of import tariffs has the potential to keep that hawkish tone at the Federal Reserve - although as we’ve seen with many of Donald Trump’s policies, these can be reversed very quickly, too. More news in line with the Philly Fed may add pressure for reconsideration.

Looking into next week, the agenda is again relatively subdued with highlights including the forward-looking German IFO surveys on Monday, US Durable Goods Orders on Wednesday and the latest revision to UK Q1 GDP on Friday. This last reading could prove the most influential for Sterling. A very modest 1.4% annualised reading is expected - anything below this would surely cast doubts over whether the Bank of England can hike rates without stubbing out growth altogether.

That hawkish signal from the Bank of England yesterday helped reverse the recent downward trend. However, with little economic data expected from the UK in the days ahead, upside is going to be reliant on further economic disappointment from the US.

The common currency found support against the dollar yesterday too, in the wake of that disappointing US manufacturing print. With question marks still hanging over just how quickly the ECB can wind up bond buying however, the risk could remain on the downside.

Bank of England hawks may have lifted the pair by almost three quarters of a cent yesterday, but gains have been eroded quickly. Further moves will be data dependent but we’re still struggling to breakout of the two cent range we’ve been stuck in for the last two months.