Daily Market Report 05/08/16

GBP

Yesterday the Pound fell sharply after the Bank of England cut interest rates for first time since 2009, revived its bond-buying programme and said it would take "whatever action is necessary" to achieve stability in the wake of Britain's vote to leave the European Union.

The BoE said it expected the economy to stagnate for the rest of 2016 and suffer weak growth throughout next year. As expected it cut its main lending rate to a record low 0.25 percent from 0.5 percent and said it would buy an additional £60bn of government debt to extend the existing quantitative easing programme (QE) to £435bn to ease the blow from the UK's Brexit vote.

But it also launched two new schemes, one to buy 10 billion pounds of high-grade corporate bonds and another - potentially worth up to 100 billion pounds - to ensure banks keep lending even after the cut in interest rates (known as the Term Funding Scheme (TFS)).

Bank of England Governor Mark Carney said the economic outlook had changed markedly following the Brexit vote and that more than a quarter of a million people are due to lose their jobs. "By acting early and comprehensively, the MPC can reduce uncertainty, bolster confidence, blunt the slowdown and support the necessary adjustments in the UK economy," he told a news conference.

Most Monetary Policy Committee members also expected to cut the main rate again this year to a rate "close to, but a little above zero" if the economy performed as poorly as forecast. However, policymakers were not completely united on how to respond.
 

USD

The number of Americans filing for unemployment benefits unexpectedly rose last week, however analysts believe the figure isn’t a concern and that the labour market remains healthy and will probably continue to support economic growth for the remainder of this year.

Claims have now been below 300,000, a threshold associated with a strong labour market, for 74 consecutive weeks, the longest streak since 1973. With the labour market perceived to be either at or approaching full employment, there is probably limited scope for further declines in claims.

Claims tend to be volatile around this time of the year when automobile manufacturers typically idle assembly lines for retooling. Some, however, keep production running, which can throw off the model the government uses to strip out seasonal fluctuations from the data.
 

Key Announcements

13:30 – USD : Average hourly earnings are forecast to increase to 0.2%

13:30 – USD : Non-farm employment change is expected to decrease to 180k

13:30 – USD : Unemployment rate is forecast to decrease to 4.8%