Spotlight on BoE’s Rate Decision and Forecasts

The Bank of England (BoE) is expected to keep rates on hold again at today’s policy meeting. This is against a backdrop of global market turmoil and further decline in oil prices, in addition to comments made in January by the BoE Governor, Mark Carney, that the UK economy is not strong enough for a rate rise. Along with the policy announcement, markets will weigh in the BoE’s quarterly economic review and inflation forecasts today, to read between the lines for any changes in the central bank’s inflation outlook and its dovish stance with respect to the expected timing of the first rate rise.

Looking ahead to today’s key economic data prints, weekly jobless claims and factory orders data are scheduled for release in the US later in the day. 

Pound Sterling – UK Markets

The Pound – US Dollar currency pair has extended its gains from yesterday’s extensive rally ahead of the BoE’s crucial policy decision which will coincide with the release of the year’s first inflation report later today. Expectations are that the central bank will leave rates unchanged in today’s policy meeting. But as the global economy weakens further, attention will be on the lone dissenter, Ian McCafferty, on whether he will rejoin the pack as he did in January 2015, when the backdrop was quite similar. Also, the latest BoE inflation report could give a more dovish view of the interest rate outlook than in November’s update, highlighting the downside risks that the US economy has been facing lately, as well as the looming referendum of the European Union membership. After the meeting, market attention will turn towards a speech to be given by BoE Governor, Mark Carney, at the press conference. 

Meanwhile, the latest UK economic data has been mixed this week, with construction PMI moderating to a still healthy pace in January, while the manufacturing and services sector are off to a strong start in 2016.

US Dollar – US Markets

The US Dollar traded on a weaker footing against most of the majors yesterday after a survey showed that growth for US companies in the services sector weakened in January. Activity in the US services sector, which constitutes about two-third of the total economic activity in the US, slowed in January, marking its weakest pace of growth since April 2014. This raises concerns about economic growth especially after data earlier indicated that the manufacturing sector in the US contracted in the previous three months. Separately, a report by the payrolls processor ADP, stated that private sector employment rose more than anticipated in January suggesting a healthy US labour market amid economic growth concerns. 

The greenback has nudged lower against the shared currency this morning ahead of factory orders and initial jobless claims data, scheduled for release later in the day. Expectations are that the applications for first-time unemployment benefits in the US might slightly rise for the previous week. Meanwhile, recent dismal manufacturing data has added to muted expectations on the nation’s factory orders data.

Euro – European Markets

The Euro traded on a stronger footing against the US Dollar yesterday after retail sales for December in the Euro zone rose for the first time in four months and in line with market expectations, largely driven by Christmas shopping of food, drinks and tobacco. Additionally, dismal services PMI data across the Atlantic also weighed on the US Dollar.

The shared currency continued to trade higher against the greenback this morning, adding to gains from the previous session. Currently, the Euro - US Dollar currency pair is trading well above the 1.11 mark. On the macro front, there are no significant economic indicators in Europe scheduled for release today. Earlier in the day, the ECB President, Mario Draghi, in a speech in Germany warned of risks of not acting swiftly on weaker inflation, hinting of further easing measures in the 19– nation common currency zone. He added that global forces could cause inflation to rise much slower than anticipated to reach its target. Going forward, investors will eye tomorrow’s German factory orders and French trade data for further direction.

Other Currencies – Highlights

The Swiss Franc is trading higher against the US Dollar this morning amid a broad decline in the greenback and following a softer tone in the Swiss currency. In economic data releases, Switzerland's consumer sentiment report for the first quarter, which came out earlier today, was upbeat. The State Secretariat for Economic Affairs (SECO) stated that the consumer confidence index for the first quarter showed better than anticipated improvement from the previous three months. The SECO survey indicates that there was a lower level of pessimism among Swiss consumers in the first quarter, even though sentiment remained broadly subdued amid strength in the local currency.

Later today, investors will keep a tab on a set of US economic releases, including weekly jobless claims data and factory orders for further direction in the US Dollar - Swiss Franc currency pair. In the week ahead, consumer price inflation and unemployment rate in the US will be eyed by investors.