01/08/2017 - Market Awaits Bank of England Interest Rate Decision

GBP

Sterling hit a 10 month high yesterday, as investors eyed this week's Bank of England "Super Thursday" for a steer on whether record-low interest rates could soon be lifted for the first time in more than a decade. The pound has recently been supported by expectations the bank might finally be getting ready for a hike after a series of hawkish comments from policymakers, but Governor Mark Carney and most of his top officials seem set to remain in wait-and-see mode.

Data showed Britain's housing market lost a small amount of momentum last month, as mortgage approvals dropped to a nine-month low and unsecured lending growth slowed further, which had little impact on the currency. The numbers added to a run of weak data which, along with deep uncertainty about the impact of Brexit on the economy, have cooled the speculation that the BoE is poised to start removing its crisis-level stimulus.

The BoE will also publish a quarterly Inflation Report on Thursday, with economists expecting the Bank to push up its inflation forecasts slightly but to lower its projection for growth after the weak start to the year. Sterling has now recovered almost half of its post-Brexit-vote falls against the dollar, down 12 percent compared with as much as 23.5 percent during a "flash crash" in October.

EUR

The Euro rallied on Monday on month-end portfolio adjustments and expectations for a more hawkish European Central Bank, and touched a more than six-week low against the yen on concerns over low U.S. inflation.A flash estimate of euro zone inflation showed that consumer price rises in July were level with the month before, standing stable at 1.3 percent and in line with forecasts.

The Czech Republic may kick off Europe’s monetary-tightening cycle this week, jumping ahead of its peers after three years of stimulus fuelled price growth that’s sputtered on the rest of the continent. Economists are almost evenly split, saying the Czech National Bank would raise its benchmark to 0.25 percent at its Aug. 3 meeting from a record-low 0.05 percent - the rest predicted no change. If there’s a hike, it will be the first in more than nine years, and it would boost the appeal of koruna assets as other rate setters stay put and the European Central Bank holds off on announcing curbs to its quantitative-easing program until fall.

USD

The greenback started to decline after the release of US data. The Chicago PMI fell from 65.7 to 58.9 in July to its lowest level in three months while Pending Home Sales increased in June by 1.5% (up 0.7% y/y). During the last hour, the dollar tumbled probably amid some end-month positioning taking place on a low volume Monday.

The dollar has come under increased strength recently following a string of poor US data. With the likelihood of another US rate hike before the end of the year diminishing, investors are not being encouraged by sustained political uncertainty due to policy.

Key Announcements 

09.30 – GBP – Manufacturing PMI; Forecast at 54.4 against previous of 54.3

15.00 – USD – ISM Manufacturing PMI; Forecast at 56.4 against a previous of 57.8