Daily Market Report - 21/05/2015

The only notable announcement concerning the pound yesterday was the Bank of England MPC vote, with a unanimous decision to keep interest rates unchanged at 0.5%, which sat in line with expectations. The Bank of England however did identify that two unidentified members on the committee stated that their decision was finely balanced between pushing for a rate hike and keeping rates on hold. Hopes of interest rate hikes this year were all but eliminated by Mark Carney, outlining lack of growth and low inflation as the main obstacles.

The BoE Agents summary of business conditions show consumer services and retail sales turnover has increased marginally, whilst the housing market remains below last year, which further outlines the ongoing issue with housing in the UK. In a debate surrounding Britain’s place in the EU, the head of the Confederation of British Industry has said that the UK would face isolation if it quit the EU and has urged other business leaders to speak up about the benefits of the EU for Britain. 

The ECB non-monetary policy meeting began yesterday, with the situation with Greece being the main topic. Greek Finance Minister Varoufakis stated that a deal between the country and its lenders is targeted for the 5th of June. However, talks appeared to be souring after Varoufakis suggested that his German counterpart Shaueble has flawed reasoning regarding Greece. Sources suggest that the Greek government have suggested to the EU and the IMF the idea of putting in place a banking transactions tax, proposing a levy of 0.1-0.2% with the aim of raising an additional 300-600million euros each year. There were also reports that the Greek Central Bank are to ask for EUR1.1bln increase however this has yet to be confirmed, rumours are that the ECB have only approved an increase to their Emergency Liquidity Assistance (ELA) ceiling by EUR200mln.. The activity surrounding Greece did cause the EUR to remain under pressure throughout yesterdays session. 

Federal Reserve member Charles Evans stated yesterday that a rate hike for the US will not be appropriate until early 2016. Evans, who has long argued for a delay to rate hikes so as not to undermine economic recovery, as the US central bank should not move rates until there was greater confidence that its inflation goal could be hit within one or two years. This is conflicting with the recent meeting where Fed chair Janet Yellen stated that she believes that an interest rate hike will be appropriate at some time this year. FOMC minutes released last night were also conflicting with earlier statements from Yellen, with only a few FOMC members supporting the interest rate hike in June, however they in general did not exclude the possibility of such a move. 

Key Announcements

08:00 - EUR - French Manufacturing flash PMI
08:30 - EUR - German Manufacturing flash PMI
09:30 - GBP - Retail Sales
11:30 – EUR – ECB Monetary Policy Meeting Accounts
13:30 - USD - Unemployment claims
15:00 - USD - Existing home sales 
15:00 - USD - Philly Fed Manufacturing Index
17:30 – EUR – ECB President Draghi’s speech

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