Further Gains For Gbp Against Usd
The Bank of England usually meets on a Thursday for its monthly vote on monetary policy, but it was delayed by a different kind of vote last week, when the UK electorate went to the polls in the country’s general election.
By Peter Martin
Monday, May 11, 2015
The BoE’s Monetary Policy Committee met today instead and surprised few by keeping monetary policy as it was, with the Bank Rate at a record low of 0.5% and QE at £375 million. UK economic indicators have been on the soft side of late, with inflation tepid and manufacturing slowing in recent data releases. On the other side of the coin, UK house prices remain extremely buoyant, the services sector is at an eight-month high and unemployment is low. Overall, therefore, there is no impetus for the Bank of England to shake things up. There will be more clues on how the central bank views the inflationary outlook on Wednesday with the release of its Quarterly Inflation Report.
The pound soared on Friday, following a surprise outcome in the UK general election: a hung parliament had been firmly expected, but instead Prime Minister David Cameron led the business-friendly Conservatives to a clear victory, sparking a gain of more than 1% in the pound against the US dollar. That momentum has carried on to some degree on Monday, pushing GBP/USD up 0.21% to 1.5486.
The highlight of last week’s domestic economic calendar was the release of monthly employment data and the report delivered a big boost to stock prices, coming in at very market-friendly levels. The 223,000 growth in non-farm payrolls in April was enough of a bounce back from March’s downwardly-revised 85,000 to assuage fears of a sustained downturn in the economy, but not strong enough to shorten the expected time-frame for Fed tightening. Unemployment dropping from 5.5% to a better-than-expected 5.4%, amidst a tick-up in the participation rate, is another encouraging sign, while an increase of just 0.1% in average hourly earnings added further to the sense of the data bringing no pressure to bear on the Fed. Wall Street finished strongly higher on Friday, with the Dow Jones and the S&P 500 Index both finishing well over 1% higher on the day.
The economic calendar gets off to a slow start this week, with no reports of note on Monday, nor any that would normally be considered market moving on Tuesday. Things should get more interesting on Wednesday with the release of April’s retail sales figures. With the first quarter clearly a period of weakness for the US economy, investors will be hoping for a brisk start to the second quarter. April’s industrial production numbers at the end of the week will also be closely watched, along with the first consumer sentiment reading for May.
With no domestic economic news of note, Friday’s momentum seems to have faded and stocks opened little-changed on Monday. Shortly after the open, the Dow Jones was up 3 points 0.02% at 18,194, while the S&P 500 Index lost 0.06% to stand at 2114.7.
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