Bank of England MPC Meet A Non Event

6 February, 2015

Simon Eastman

It was a day with little releases but more of two key events which dominated the markets outlook for the day. On one hand we had the Bank of England MPC interest rate and policy statement and on the other the European Commission’s growth forecast.

The day started however, with some lower key ecostats both here and in the EU kick-starting with German factory orders, coming out above forecast. As you might expect the euro made some gains off the back of this halting only in direction once the UK Halifax house price index showed growth of 8.5 percent, well above the expected 7.8 percent for the year, but more importantly month on month growth realising 2 percent over the 0.1 percent expected. A certain good sign for the UK economy surely.

The pound continued to make hay across all major pairs, following on from Wednesday, with sentiment clearly lying with sterling, helped by a couple of positive ecostats. For the euro, this trend stopped once the European Commission released its economic growth forecast, actually naming Greece as the top of the growth list for 2016. European Commission VP Valdis Dombrovskis stated “Greece is one of the fastest growing EU economies now, they are back to economic growth and job creation and they have ensured financial stability.”

Given the uncertainty over the anti austerity measures likely to be in the forefront since the election, investors took this in a very positive fashion. The euro proceeded to gain nearly a cent against sterling and a ¾ cent against the US dollar. Despite the initial positivity, the pound managed to turn the trend even despite no statement from the Bank of England at midday. Investors are clearly awaiting further indication as to when interest rates might be going up amid concern inflationary pressures will remain throughout the year. We have to wait another week until the monthly inflation report next Thursday to gain further insight so until then we can expect second guessing and the subsequent volatility which comes with that.

Some weaker than expected US trade balance was the final nail for the dollar yesterday giving way to a further half cent gain for the pound. Having reached its weakest point since the beginning of the year those looking to buy US dollars for that property in the Florida sun, or those thousands of business clients with invoices to fulfil in the Far East, it’s a great time to take advantage. The 3 cent difference from last week is welcoming but as we have seen in recent weeks, the markets are vulnerable and the gains can easily be lost. Elsewhere in North America, Canadian trade balance and import and export data smashing expected yields gave the Loonie some legs to push on against its major pairings, including sterling, ending trade with GBP/CAD a cent and a half more expensive.

Overnight, the Reserve Bank of Australia released its policy statement following its recent interest rate cut which showed a review of its growth forecast and mentioned they would be looking “closely” at the housing market with regards to further monetary policy. The markets received the statement well, as we saw the Aussie gain off the back of it. The result on the rates being a one cent gain against sterling and similar against the US dollar.

The week comes to an end with another busy day, including UK trade balance, Swiss retail sales, Canadian unemployment rate and US unemployment figures including the key non-farm payrolls – and thats all by 1.30pm! To keep up to date, make sure to keep your comms open with your broker here at CI so we can keep you informed of any opportune trading levels.