Ready, Aim, Fire?
Will the Bank of England (BoE) finally pull the trigger? This is the burning question across the globe today. The central bank’s surprise move to refrain from introducing any policy change at its July meeting has upped the ante for today’s meeting. However, the BoE is widely expected to cut the key interest rate to a record low of 0.25% as Britain’s economy teeters on the brink of recession. Given the recent string of weak numbers from Britain, the call for swift policy action from the country’s top financial authority is all the more powerful if confidence in the economy is to be restored.
Meanwhile in the Eurozone, German construction Purchasing Managers’ Index (PMI) registered a rise in July. Across the Atlantic, US reports on weekly jobless claims and durable goods orders are up for release later today.
Pound Sterling – UK Markets
The Pound is trading on a weaker footing against its major peers this morning ahead of the anxiously awaited BoE monetary policy meeting today. It is widely anticipated that the central bank will slash the benchmark interest rate to an all-time low level of 0.25%, which could be the first rate cut since March 2009, to shore up confidence in the UK economy after recent data points confirmed a slowdown in the aftermath of Brexit. The nation’s manufacturing PMI for July dropped to its lowest level since 2013, while last month’s gauge on consumer confidence dropped the most in 26 years. In addition to this, yesterday’s services PMI data showed that the British economy is shrinking at its fastest pace since 2009.
The BoE Governor, Mark Carney, is scheduled to hold a press conference post the monetary policy meeting today. Separately, the BoE will also release its meeting minutes and a quarterly update to its growth and inflation forecasts.
US Dollar – US Markets
The US Dollar is trading higher against the single currency and the Pound this morning. Later today, the US is set to release weekly initial jobless claims as well as factory orders data. Looking further ahead, this week will end with the release of the crucial US jobs data, which will provide further insights into the US Federal Reserve’s timing of the next interest rate hike.
Yesterday, the report from payrolls processor ADP showed that the US private sector added more than expected jobs in July, suggesting that the nation’s labour market continues to improve. The positive ADP data increased expectations of a better than expected nonfarm payroll figure. Meanwhile, the US Markit services PMI remained unchanged in July from June but was higher than the preliminary estimate. On the other hand, the index tracking activity in the US non-manufacturing sector decelerated in the seventh month of the year, after hitting its strongest reading in the previous month since October last year. Additionally, weekly applications for US home mortgages fell again in the week ended July 29.
Euro – European Markets
The shared currency is trading mixed against the US Dollar and the Pound this morning. Data released earlier during the session showed that Germany’s construction PMI advanced in July. Separately, the European Central Bank (ECB), in its economic bulletin report, indicated that the global economic outlook has become more uncertain post Brexit and reaffirmed its readiness to achieve the inflation target. Looking ahead, this week will end with the release of German factory orders and French trade balance data, both for the month of June.
Yesterday, the Euro ended lower against its major peers. On the data front, the Eurozone’s retail sales, a proxy for household spending, stagnated in June, coming in line with market expectations. While the sale of both food and non-food products rose during the period, overall sales were dragged lower by a drop in fuel sales. In other economic news, the region’s services PMI nudged up in July while in Germany, private sector activity surged to its highest level this year.
Other Currencies – Highlights
The Swiss Franc is trading lower against the greenback this morning after Switzerland’s SECO consumer confidence index dropped for the ninth consecutive quarter during the three months ended July. The index has languished below the long-term average of -9.0 points since July 2015. The Alpine economy has weathered a rough patch during the past few years. It all began with the Swiss National Bank planning to abandon an exchange rate cap against the Euro in January 2015. This in turn caused the domestic currency to soar and the nation’s exports to the country’s main trading partner, the Eurozone, suffered a hit. As Swiss households geared up to digest this harsh reality, they were jolted by the Brexit vote, the real impact of which is still waiting to be ascertained. Next week, investors await the release of Switzerland’s consumer price index and unemployment rate data for July.
Earlier this week, data showed that Swiss real retail sales dropped further last month. Additionally, the nation’s SVME – PMI declined more than expected in July.