UK Interest Rates remain on hold

Sterling saw losses across the board yesterday as the recent positive hints towards a hike in the interest rate turned from hawkish to somewhat avoidance and dovish. The BoE Monetary Policy Committee once again voted unanimously to keep the interest rate on hold at 0.5%. Expectation amongst market participants were fixated on the rumours that one or more members could break rank and vote in favour of a hike, Sterling came under pressure almost immediately following the wave of disappointment. Mr Carney’s speech in Scotland yesterday held a secretive tone in which he seemed to avoid giving too much guidance on when an interest rate hike might happen, quoting “rates will rise when rates rise”. An altogether different tone to the speech made just a month ago at Mansion House. The general feel is that the BOE are concerned that the strong recovery seen so far in 2014 could well slow down by the end of the year. Either this is a stance taken to mitigate risk and not to strike too early, or, because they feel they have genuine reason to believe the UK recovery will stall in the coming months. UK employment figures have come under scrutiny, although strong numbers have been posted they have been somewhat askew given that we have a record high for self-employment and the same goes for low skill/low paid jobs – in which case, the UK employment data doesn’t really give a true reflection of the job market. As most of us are all too aware, wage growth in the UK is a huge concern with results showing a low of 0.7%. Vast improvements will need to be seen here before rates will even be considered, and if inflation sticks at 1.9/2% then we would need to see a wage improvement in line with that figure.

The Euro had a quiet day on the economic calendar yesterday offering only minor data releases. The main move for the Euro was indeed as a result of the Mark Carney’s speech in Scotland following the interest rates vote results for the UK. After an expectant morning for Sterling bidders, the Euro was almost pushed to a trend breaking low of 1.27 (0.7874) – following the speech, the Euro was able to take a breath as the pair retreated back to the safety of the 1.2630/40’s where is resided for much of the day. There isn’t a whole lot to declare for the Eurozone for yesterday as it again sat in a tight range against the USD – the difference between the high and low for the day being 19 pips. This morning we had the release of Markit Manufacturing and Services PMI figures for Germany and the Eurozone proper – all of which exceeded expectation but unfortunately for the Euro, this did not do anything to rock the market.

We witnessed a muted day from on US on the economic calendar yesterday with no market moving data to work with. In similar fashion to GBP/EUR – GBP/USD traded higher before the release of the MPC votes and Carney’s speech, again pushing the 1.71 psychological level of 1.71 (0.5847) reaching a top end of 1.7095 on the day. The same result was achieved post release as the pair came back to 1.7024 and hung around the 1.7030/40’s for much of the day. The UK was the focus for yesterday but it was both the Greenback and bloc currency that took advantage. Looking at today we have the release of the US Initial and Continuing Jobless Claims at 1:30pm – with US employment data so strong of late, the question is how much longer this can continue until the wheels fall off. Following that we have Markit Manufacturing PMI at 14:45pm. New Home Sales at 3pm has potential to cause upset to Sterling and Euro if the figures are positive, the “resurgent” housing market in the US has been bubbling of late, however, as it is not tier 1 data it could already be priced in.