Daily Market Report 04/08/16

GBP

Sterling traded just off a three-week high against the dollar and edged higher against the euro on Wednesday, with some analysts saying pricing and positioning offer it a chance to rally after Thursday's Bank of England policy decision.

Money markets have fully priced in a quarter point cut in the Bank's main interest rates and many economists expect it to provide other measures to push more credit through an economy already showing signs of slowing after last month's Brexit vote.

The slide of Britain's pound against the dollar since Britons voted to quit the European Union is not over, according to a Reuters poll on Wednesday that also predicted the currency would fall to a level not seen in over three decades. In the five weeks since Britons voted on June 23 to leave the EU the pound has sunk about 10 percent - as predicted in a poll of the same strategists ahead of the vote. They say it is now set to fall another roughly 6 percent.

While there is no official data available yet on how the economy has fared since the vote, business surveys have suggested Britain's economy is shrinking at its fastest rate since the 2008-09 financial crisis, paving the way for a Bank of England rate cut later on today.

USD

The dollar gained on Wednesday, after hitting six-week lows a day earlier, as investors squared positions ahead of Friday's U.S. non-farm payrolls report, which should help determine the timing of the Federal Reserve's next interest rate hike.

The greenback had been on its best run of weekly gains in 1-1/2 years until last week, when the Fed disappointed investors who had hoped the U.S. central bank would clearly signal a near-term rate hike and U.S. growth data came in much weaker than expected. 

Data on Wednesday from payrolls processor ADP showing the U.S. private sector added 179,000 jobs in July suggested that the labour market continues to improve. However, the data did not significantly alter expectations that the Fed will hold off raising interest rates until next year. Friday's release of the government's July jobs report will provide a broader picture of the labour market.

Fed funds futures late Wednesday saw an 18 percent chance the Fed will increase rates when it meets next month, up from 12 percent Tuesday, according to the CME's FedWatch. For the December meeting, the probability of a Fed hike rose to 42.7 percent from 38 percent on Tuesday.
 

Key Announcements

12.00 – GBP – BOE Inflation report

12.00 – GBP – Official Bank rate

12.30 – GBP - BOE Governor Mark Carney Speaks

13.30 – GBP – Unemployment claims forecast at 265K against a previous of 266K