Spotlight on BoE’s Interest Rate Decision
The Pound hit a new 11-month high against the US Dollar while investors and traders in the City are waiting for the Bank of England’s (BoE) decision regarding its interest rates. The majority of experts suggest that the BoE will keep its benchmark interest rate on hold, at the current 0.25% record low. However, there is speculation that the Monetary Policy Committee (MPC) will be split again in the voting procedure, with chief economist Andy Haldane joining the camp of MPC members that believe it’s time for the BoE to raise borrowing costs.
In the US, despite the political turmoil in Washington, the Dow Jones Industrial Average hit an all-time high, with tech shares leading it upwards. President Trump presented his plan for a new immigration law that will cut, by half, the number of immigrants accepted into the US over the next ten years, and which gives priority to those who speak English or are well educated. Donald Trump also approved a new package of sanctions against Russia, and expanded existing sanctions on Iran and North Korea.
Pound Sterling – UK Markets
Today, Sterling strengthened against the US Dollar, with the exchange rate set at $1.32. The Pound rallied against the Euro, with the exchange rate set at €1.11. IHS Markit published its July’s UK Services PMI, which beat expectations as hiring picked up and the service sector’s growth accelerated in comparison with June. At noon, the BoE is going to announce its decision on whether or not it’s going to raise its interest rates.
The majority of analysts expect the BoE to leave the benchmark rate at 0.25%, which is a record low. They suggest that the British central bank will update its growth forecasts because of the latest weak GDP growth figures. Economists have predicted that at least two members of the MPC will vote in favour of picking up interest rates. However, Andy Haldane may join their group since, during the last month, he has repeatedly expressed the opinion that borrowing costs should rise.
A report by BNP Paribas said that the BoE won’t hike its interest rates in 2017. Its economists suggested that this would be inconsistent with the current weaker growth data. Rabobank analysts believe that a BoE tightening could provide some short-term support for Sterling, but at the same time, it could increase the possibility of a more marked slowdown in growth. Even though the majority of experts believe that the BoE will hold its interest rates stable, a report by Nomura Securities, one of the global financial services giants, suggests that the BoE will raise its benchmark interest rate to 0.50% today. The report by Nomura says that recent strong rises in the UK wages and the fall in unemployment are forcing the inflation to rise and concludes that it is possible that the BoE will surprise the markets today.
US Dollar – US Markets
The US Dollar rallied against the Euro, with the exchange rate set at €0.84. The US Dollar index (DXY), which measures the value of the Dollar against six major currencies, also made a small rebound after hitting a fifteen-month low yesterday.
Wall Street investors and traders were glad to see the Dow Jones Industrial Average breaking through the 22,000 barrier for the first time in its 121-year old history. Positive corporate earnings reports published by many companies, with Apple being the leader, helped boost the index. According to market analysts, investors seem to be completely immune to the political turmoil caused by the Trump administration in Washington. They suggest that the weak US Dollar and the Fed’s cautiousness towards increasing borrowing costs are helping lift the value of exporters’ shares.
Donald Trump presented his plan for new immigration laws that would cut by half the number of immigrants accepted in the US over a decade. The plan would give priority to immigrants that can speak English or are well educated. President Trump described the bill as “legislation that would represent the most significant reform to our immigration system in a half century.” Democrats said they are not going to support the plan.
Euro – European Markets
The Euro dropped against the US Dollar, with the exchange rate set at $1.18. Retail sales, Services and Composite PMIs were on the spotlight in the Eurozone today.
Retail sales data in the Eurozone were once more on positive ground. In June, retail sales, on a yearly basis, increased by 3.1%, much better than the 2.6% expected. On a monthly basis, retail sales grew by 0.5% in July, again beating analysts’ expectations of a 0.1% increase.
IHS Markit released data regarding the activity of the factory and the services sector in the Eurozone, which seemed to slow down in July, after a strong start in the beginning of the year. The Eurozone’s Composite PMI, which includes the manufacturing and services sectors, fell to a six-month low in the second month of the summer. Germany’s Composite PMI indicated a slowdown in growth, registering the worst figure in the last twelve years. The French Composite PMI also came at a six-month low, with only Italy, out of the four largest Eurozone economies, recording faster growth in July.
Other Currencies – Highlights
Sterling strengthened against the Australian Dollar, trading at 1.66 AUD. Australia’s trade balance in June came at AUD 856 million, much less than the AUD 1.8 billion expected by market analysts. Exports came at -1% versus 9% in May. Imports were increased by 2% in June against 1% in May. The Aussie was also dragged down by the China Caixin services PMI, which missed estimates. The Chinese and the Australian economies have strong trade ties, so negative news coming from China usually affects the Aussie.
The Pound jumped against the New Zealand Dollar, trading at 1.78 NZD. A survey by the ANZ bank showed that job ads growth slowed to 0.5%, on a quarterly basis. ANZ analysts suggest that the reason for the slowdown is that companies are facing trouble finding skilled workers and seem to have abandoned the traditional sourcing methods. According to the survey, the lack of suitable workers signals the need for wages to rise. ANZ analysts note that the less-urbanised regions of New Zealand are still experiencing stronger annual job ad growth than the three major cities.