The pound fell sharply against its major peers during yesterday’s session after the Bank of England cut growth forecasts on Super Thursday. The BoE keep interest rates on hold at 0.25% and reduced economic growth forecasts to 1.7% from 1.9%. The Monetary Policy Committee vote revealed only two members voted for a rate rise which was one less than June.
As protestors gathered outside the central bank Carney predicted living standards will be squeezed by higher inflation and sluggish wage growth and warned households to expect interest rates to rise over the next year. The Bank sent out a clear message that businesses and households should not expect borrowing costs to stay at their record low for much longer.
The meeting minutes indicate that if the economy performs as the Bank was predicting, interest rates could be raised by more than financial markets are currently pricing in. Those market expectations are for two rises to 0.5% and then to 0.75% over the next three years.
The pound received a boost early on in the session after output in the UK's services sector beat expectations in July with the pace of job creation rising to its strongest in a year and a half. But with input cost inflation remaining strong in July as food prices, energy bills and salary bills rose, firms also hiked their prices by the most in three months.
The US jobs market received a boost after the decline in jobless claims shows the labour market remains robust in a tightening job market. The data released on Thursday is little changed from the average so far this year.
A shortage of qualified workers is making employers reluctant to let go of the people they already have, keeping the underlying trend in jobless claims near the lowest level in more than four decades. This supports other solid jobs data such as business hiring and job openings which indicate solid demand for labour.
13:30 – USD – Average hourly earnings is expected to decrease to 4.3%
13:30 – USD – Non-farm employment change is expected to fall to 181k
13:30 – USD – Unemployment rate is expected to decrease to 4.3%