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Sterling benefits as BoE hold their view amidst market turmoil

  • UK Halifax HPI m/m: 2.7%
  • UK MPC Official Bank Rate Votes: 1-0-8
  • UK Official Bank Rate: 0.50%
  • UK Asset Purchase Facility: 375B
  • UK MPC Asset Purchase Facility Votes: 0-0-9
  • UK Monetary Policy Summary
  • US Unemployment Claims: 275K

Yesterday Sterling had mixed fortunes as it continued to push higher against the US Dollar whilst sliding against the single currency. The main reason for Sterling’s gain against the US Dollar was the much anticipated BoE meeting. After last week’s ECB meeting there was an element of the market that was anticipating the same cautious tone echoed by ECB President Draghi. As expected the BoE kept rates on hold with Ian McCafferty once again dissenting and voting for a rate hike in a 8-1 vote. The key statement was “global developments do not as yet appear sufficient to alter materially the central outlook described in the August report”.  However, they lowered its estimate for the UK's economic growth in the third quarter of this year from 0.7% down to 0.6% amid the latest run of poor figures. It will be interesting to see the BoE commentary in October if the market turmoil continues.  

The impressive labour data continues to roll out of the US as fewer Americans filed for weekly unemployment benefits than expected. It was the 27th straight week that claims remained below the 300,000 threshold, which is usually associated with a strengthening labor market. However, looking at the conditions required for a rate hike there is a big area of concern. Inflation continues to drag, import prices fell 1.8 percent last month as the cost of petroleum and a range of goods dropped. August's drop in import prices was the largest in seven months and suggested a strong Dollar is keeping prices low. The FOMC have a difficult decision as “lift off” in interest rates will only strengthen the Dollar further. The rate hike debate continues.

  • EUR ECOFIN Meetings
  • UK MPC Member Forbes Speaks
  • US PPI m/m
  • US Core PPI m/m
  • Prelim UoM Consumer Sentiment

We have key data and events to close the week. There will be another reading on US inflation with the release of the producer price index. In addition, the University of Michigan consumer sentiment will keep the market interested. Meanwhile, the ECOFIN meeting begins in Brussels. Given the economic backdrop the market will monitor the rhetoric for any eye catching news.