As expected the Bank of England left interest rates at 0.75% but two of the seven committee members voted for an immediate rate cut. The accompanying statement revealed that monetary policy may need to be eased (cut interest rates) if global growth fails to stabilise or Brexit uncertainty remains, but without those factors policy could be tightened at a gradual pace (raise rates). The bank also revised inflation forecasts downward but added that ‘no-deal’ Brexit risks had fallen sharply. Bank Governor Mark Carney even stated that the Brexit deal created the possibility of stronger growth. The 2 votes for a rate cut and ‘dovish’ forward guidance triggered Pound selling, reaching 2-week lows near 1.2800 on the Dollar and dipping to 1.1560 on the Euro before recovering to 1.1600. Global risk appetite remains strong this morning but the Pound has been subdued and there’s no UK data due until Monday.
US jobless claims declined to 211,000 in the latest week from a revised 219,000 previously with no evidence of deterioration in the labour market. Atlanta Federal Reserve (Fed) President Bostic shifted to a more hawkish tone with comments that he would not have supported the October rate cut if he had been a voter. He also stated that the economy is on track to hit the 2% inflation target.
Futures markets indicated that the chances of a further rate cut at the December meeting had declined to near 5% German yields increased sharply on the day, but the Euro failed to benefit even with a narrowing of yield spreads against the US dollar and it retreated to below 1.1050 against the Euro amid wider US gains as dollar sentiment held strong.
The EU Commission lowered Euro-zone forecasts with GDP growth expected at 1.2% for 2019 and 2020 while inflation was expected to remain below 1.5% for the next 3 years. The Euro failed to gain any traction ahead of the US open and drifted in tight ranges. Significantly, the common currency was unable to extract any benefit from optimism over US-China trade developments.
German yields increased sharply yesterday, but again, the Euro failed to benefit even with a narrowing of yield spreads against the US dollar and it retreated to below 1.1050 amid wider US gains as Dollar sentiment held strong.
As of writing. The Euro finds itself at 1.1044 against the Dollar with no data out today in Euroland.
Data to watch
13.00 USD - Fed's Brainard speech
15.00 USD - Flash Michigan Consumer Sentiment Index
Posted in Daily Market News on Nov 8 2019