Markets Focus on BoE Rate Decision
The new £10 note is launched today by the Bank of England (BoE), but its decision on interest rates at noon will probably affect how many Euros or US Dollars you can buy with it. The Monetary Policy Committee (MPC) of the BoE is having its September meeting after which its members will vote on whether or not the BoE’s benchmark interest rate should be picked up from the record low 0.25%. The rate has remained unchanged since right after the Brexit referendum, when the BoE decided to lower it in order to prevent potential financial problems in the British economy.
A Reuters poll showed that the majority of economists surveyed still believe that the Fed will hike its interest rates in the last quarter of 2017. Economists said that they expect the US GDP to rise by 2.6% in the third quarter of the year, a bit better than the 2.5% previously estimated. President Donald Trump said to reporters that the tax reform will bring new taxes to the rich in order to protect the middle class and urged Congress to work faster on that matter.
Pound Sterling – UK Markets
Today, the Pound dropped against the Euro, with the exchange rate set at €1.10. Sterling edged lower against the US Dollar with the exchange rate set at $1.31. Investors’ attention has shifted to London where the BoE’s MPC is having its September meeting.
The majority of City analysts believes that the BoE is not going to raise its benchmark interest rate from the record low of 0.25%. Data published earlier in the week showed that inflation is at 2.9%, which is a four-year high, and wages grew by only 2.1% in the last month resulting in real wages getting smaller. Market experts say that taking into consideration these economic conditions and the uncertainty around Brexit, it would be difficult for the BoE to take a decision that would make borrowing more expensive.
As in previous MPC meetings, two MPC members are expected to vote in favour of raising the interest rates, while analysts will also be expecting to see if Andy Haldane, who has said that the BoE should proceed with such a move, will join their team. An ING report suggests that if the MPC vote result today is 6-3, then the possibility of a rate hike by the BoE in November will rise to 50%.
US Dollar – US Markets
The US Dollar dropped against the Euro, with the exchange rate at $0.84. The US Dollar (DXY) inched higher at 92.44. Traders and investors will be waiting for the release of the US inflation data later in the day.
President Donald Trump met with top Congressional Democrats in order to push his key reform agenda. Trump said that taxes for the rich may have to be increased. His words contradict a proposal made from the administration in July. The plan, at that time, was about reducing the top income tax rate to 35%. The President said to reporters that “the rich will not be gaining at all with this plan. We are looking for the middle class and we are looking for jobs—jobs being the economy.”
White House Budget Director Mick Mulvaney said on CNBC that it will be very difficult to work with Democrats on a tax reform plan if they can’t support a reduced corporate tax at 15%. He added that 15% is a realistic figure, something which contradicts Steven Mnuchin’s opinion that the tax rate can’t be so low. Mulvaney expressed his frustration for how slow things are progressing regarding the tax reform plan.
Euro – European Markets
The Euro edged up against the US Dollar, with the exchange rate set at $1.19. A series of positive data from Italy and France helped the single market currency strengthen.
According to data released by the INSEE, French inflation in August came in at 1%, on a yearly basis, in line with expectations. In Italy, inflation in August came in at 1.2% as market analysts were anticipating. Back in France, the finance minister Bruno Le Maire called for new tools that will bolster prosperity and stability in the Eurozone, in order to avoid a populist backlash. Le Maire, who was appointed minister after May’s election, appeared confident that Germany and France will find a “modus vivendi”, solving their differences and pushing through a Eurozone overhaul.
In Germany, the finance minister Wolfgang Schaeuble said that the speech which Jean-Claude Juncker delivered yesterday in the European Parliament was in line with Germany’s views on the Eurozone’s future. In the past, the two men were at odds, disagreeing about various reforms that would help the European Union (EU) go forward. Schaeuble said that Juncker’s plan to introduce the Euro to poorer eastern EU countries conforms to the Lisbon treaty. However, he urged that those countries that want to join the Eurozone should be well prepared or else they will face problems such as the ones that Greece does.
Other Currencies – Highlights
Sterling continued its drop against the Australian Dollar, trading at 1.65 AUD. The Aussie got boosted by news that the Australian economy added more jobs than expected in August. The Australian Bureau of Statistics (ABS) published a report which said that 54,200 people found work in the last month of the summer, almost four times more than the anticipated number. Unemployment rate was stable at 5.6%. The participation rate also increased to 65.3% from 65.1% recorded in July.
The Pound fell against the New Zealand, trading at 1.82 NZD. The Kiwi weakened when a 1News Colmar Brunton showed that the gap between Labour and the National Party remains unchanged, with 44% willing to vote in favour of Jacinda Ardern and 40% for the governing party. The poll also showed that the NZ First party has lost considerable strength just nine days before the election date.
Sterling dipped against the Japanese Yen, trading at ¥145.70. The Japanese industrial production increased by 4.7% in July, on a year-to-year basis, in line with expectations.