31/01/2020

UK interest rate remains unchanged


GBP

Sterling strengthened on Thursday as the Bank of England opted to keep interest rates on hold at 0.75%, defying money markets who, in weeks prior to the meeting, had priced a 25 basis points cut as high as a 70% probability. 

In what could be described as a relatively hawkish rate decision, Policymakers voted 7-2 in favour of keeping rates on hold. It was acknowledged that a recent recovery in UK data and business confidence growth was a reason not to alter the current monetary policy. The move saw GBP-EUR move to month-highs at 1.1902 and GBP-USD rate to week-highs at 1.31.

Leading up to the rate decision, GBP had been on the back foot following a string of poor economic data and recent comments from Bank of England Policymakers that they would vote for a cut unless data improved.

The monetary statement followed and provided some additional support for sterling as Policymakers justified their decision to keep rates on hold. According to the monetary statement, the majority of members expect a recovery in data due to reduced Brexit uncertainty and that the upcoming March budget will likely provide a fiscal boost to the economy. They added that should growth remain sustained, interest rates will stay higher. If not, the next move will be a cut.

Money markets expectations of a cut before March currently sit at 14% having been as high as 80% prior to the rate decision.

USD

USD fell on Thursday as odds of an interest rate cut grew following the news that the economy showed its slowest annual growth for 3 years, making this the second straight year Trump’s administration have missed their 3% target.

Growth in consumer spending, which covers more than two thirds of the US economy, also missed expectations of 2% slowing to 1.8%. 

Key Announcements

10.00 – EUR: GDP (YoY) – consensus 0.2% previous 0.2%.
10.00 – EUR: CPI (YoY) – consensus 1.4% previous 1.3%.


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