BoE maintains policy

GBP enjoyed a strong day yesterday following last week’s drop‐off against EUR and USD when it became apparent that a reduction in inflationary pressures diminished the chance of an interest rate hike in the immediate future. With that having sunk in over the course of the week, the pound staged a comeback yesterday as it was seen to hit 1.5200 IB versus the dollar, and 1.4200 against the single currency. The boost was certainly aided by some excellent employment data, namely a 73.7% employment figure, and wage growth of 3% ‐ both of which indicate that the UK’s economy is on the up and up. This will allow the BoE to now maintain its neutral economic policy.

EUR was more influenced by the pound’s happenings than by data movements on the mainland. Even Mario Draghi’s speech seemed to miss mentioning anything of interest, including news related to the future of QE and what might happen in that regard. What there has been talk about is the potential lowering of the deposit rate by the ECB as opposed to further QE. With the euro softening against the dollar, some positivity with that is the increase in exports and a rise in inflation. What we wait for now is to find out what Mario Draghi has to say this morning in terms of maintaining the status quo or implementing the deposit‐related changes quarters are calling for.

With the US on holiday yesterday, USD was still somewhat volatile as we are seeing punter’s hopes dwindle that a rate hike will occur before the year is out, and whether there may, in fact, be more than one in the New Year. With the dollar, of late, being propelled by good data out of the US, the more of that we see the sooner the rate hike will be implemented. But, again, this may need to be staggered as the actual impact of a rate hike/s is now being pondered about; how will it, in real terms, affect the US economy amongst the global markets? Without much data from the US today, attention will be on a host of speeches being given over the course of the day by numerous figures of note; all ears will be waiting for the ‘hike’ word.