The British pound fell broadly this morning following the latest announcement from the Bank of England’s Monetary Policy Committee (MPC).
By Peter Martin
Friday, August 7, 2015
This meeting was the first one incorporating the new system of releasing minutes from the meeting simultaneously with the policy announcement and though the decision to make no change, leaving the benchmark Bank Rate at 0.5% and quantitative easing at £375 billion, was as expected, it was the inactivity of the committee’s hawks in the voting that has undermined the pound this morning. It seems from the minutes that the strength of sterling, along with lower oil prices, is causing some concern over whether inflation will pick up as desired in the near-term (with the BoE’s inflation report describing the near-term outlook as ‘muted’ and claiming that falls in energy prices will bear down on inflation into the middle of next year) and the vote came in as eight in favor of no change, with just one dissenter (in the form of chief hawk Ian McCafferty). There had been an expectation that two, or even three, member of the nine-man committee might vote for an immediate rate rise. After many months of unanimous decisions, this still looks like a sign that the Bank of England is starting down the path toward tightening, but the pace may be more sauntering than had been anticipated. GBP/USD plunged below 1.5500 in the direct wake of the announcement, but has pared some of those losses to 1.5525, down 0.50% on the day.
In the US, the labor market looks to be continuing on its road of improvement, judging by the latest jobless claims data which was released this morning. Though initial claims saw a small hop upward last week, increasing 3000 to 270,000, this was lower than expected and the four-week moving average declined for a third successive week, improving 6500 to 268,250, a level that is over 10,000 better than it was looking a month ago. We’re now through the auto industry’s re-tooling phase and there was no revision to the previous week’s numbers, so that the low numbers we’ve been seeing appear to be evidence that the labor market is genuinely better than it has been for many years. This is a positive sign heading into tomorrow’s important employment situation report and it’s curious that market expectations aren’t particularly buoyant. The consensus estimate is for non-farm payrolls growth to have eased in July to 212,000 from June’s 223,000. Payrolls growth above 200,000 are healthy, but the average growth in the second quarter was 221,000. Average hourly earnings will also be closely watched, as it could prove to be a barometer for the inflation outlook: this metric ground to a halt in June, and a rebound to +0.2% is expected.
Stocks have declined quite sharply in early trading on Wall Street, dragged down by Disney ($DIS) and oil moving lower. Disney beat earnings expectations but disappointed with quarterly revenue when it reported after the closing bell yesterday and its shares are down 4.5%, while US oil futures have slid more than 1% today. Shortly after the opening, the Dow Jones was down 94 points or 0.54%, while the S&P 500 dropped 0.38% to 2091.9. The strong fall in the Dow Jones has skewed the price of Binary Options strongly in favor of a negative finish, despite nearly the whole trading session remaining. At the time of writing, Nadex was pricing its Binary Option for Wall Street to finish up at a bid/offer of 12.4/15.5.
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