Markets digest central bank announcements

Yesterday’s trading saw another volatile day as the markets digested the latest central bank announcements from the UK and Europe. The Bank of England kicked things off with a much expected hold on rates and monetary policies. There has however been speculation that MPC member Ian McCafferty may withdraw his vote for a rate hike which could have spelled more bad news for the pound. The minutes however showed that votes remained at 8-1 against a rate hike with just the lone hawk standing his ground. Ian McCafferty again voted for a 0.25% increase in the base rate and stated that there were increased upward core inflation risks, once you stripped back the effects of plummeting oil prices. The markets took this news positively with sterling making small gains in the afternoon against most currencies, however the outlook remains gloomy with most major banks pushing back their expectation of the first UK rate hike to Q4 of 2016 or even Q1 2017. The minutes also sighted the downside risks to the global economy as a concern, along with slowing growth in UK wages. With a potential EU Referendum in the summer it could well be a tough 6 months for the pound.

The ECB released minutes shortly after from their December policy decision where they cut the deposit rate by 0.1% and extended the QE programme by a further 3 months. The minutes however showed that some policy makers wanted more aggressive action with a 0.2% cut and commented that there was still room for further cuts in future meetings, as well as further extending the QE programme in an aid to boost struggling inflation levels. The progressive approach from the ECB allows them to review the effects before taken further action, but well and truly keeps the door open for additional policy changes in future meetings. This news put pressure on the Euro and allowed GBP/EUR rates to recover 1 cent from its 1 year lows. Today’s announcements are very unlikely to be trend changing details but could allow for some better buying opportunities in the coming days.

We finish off the week with US Retail Sales this afternoon at 1:30pm with a slight slowdown in growth expected from last month. With the dollar in such a strong position, any weak data could provide some short lived spikes to buy on with cable rates still in a steady decline. To keep up to date with such opportunities, make sure your broker is aware of any upcoming transfers requirements.