Markets await Bank of England interest rate decision
US Dollar recovers after last week's slump
US Inflation and Jobless claims this afternoon
Current Market Overview
The markets’ focus will be on the Bank of England (BoE) interest rate announcement at 12:00pm today. This announcement could help determine the direction of the Pound for the coming months. While no changes are expected to either the 0.25% base rate or the Quantitative Easing (QE) programme, the now full strength Committee’s voting pattern will be in focus. Previously, two members voted for a rate rise, however, a lot changed since their last monetary policy meeting, most notably, core inflation hitting a five-year high and average earning accelerating from 1.8% to 2.1%. However, the data is still somewhat mixed, the service sector – which accounts for almost 80% of the UK’s economic activity – grew at the slowest pace for almost a year.
The Bank of England is an inflation focused central bank, putting them in a difficult position; on the one hand, they would like to curb inflation, however, they know that raising rates will likely come at the cost of growth in an already uncertain period. We do know that Governor Mark Carney is a proactive governor compared to his predecessor, but he still remains cautious around Brexit, so it all hinges on Carney’s view on whether inflation is seen as a temporary phenomenon or not.
Across the Atlantic, the US Dollar has regained ground after it slumped last week and has so far been the strongest performing currency this week. This is on the news that Florida was not hit as hard by Hurricane Irma as expected and a framework for President Trump’s tax reforms will be released during the week of 25th September. Secretary of Treasury Mnuchin has also stated that backdating the tax form was absolutely a possibility. Additionally, some appetite for risk has returned, with a slight easing in geopolitical tensions. US Inflation and Jobless Claims numbers are due this afternoon, however, traders will be eyeing data over the next few months to assess the true effects that the hurricanes have had on the economy.
And in Asia Pacific, the pace of China’s economic expansion unexpectedly cooled further last month after a lacklustre July, as Factory Output, Investment and Retail Sales all slowed. Despite the weaker Chinese data, the Australian Dollar surged overnight after a solid August jobs report, which showed more than 54,000 jobs were added last month, while the unemployment rate held steady at 5.6%, in line with forecasts.
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