Monetary policy decision from the Bank of England was the most awaited event that took place today. While interest rates weren’t changed, as expected, the outcome was more dovish which caused a sharp fall of the GBP.
The Super Thursday did not disappoint in terms of delivering a big move on the pound but it indeed disappointed many on the markets. Following a hawkish surprise at the last meeting in June, rate hike expectations escalated pulling GBP rate higher across the board. The Bank of England decided to pour some cold water on heads of GBP bulls today.
First and foremost rates are unchanged. This is not a big surprise itself but keep in mind that 2 analysts surveyed by Bloomberg expected a hike at this very meeting – it says something about how much the market has moved. What is more, vote distribution moved from 3-5 in favour of the hike to 2-6 as Kristin Forbes (the most hawkish MPC member) has been replaced by Silvana Tenreyro. This could be seen as a “near consensus” outcome but BoE dovish comments were not. The Bank said it could rise rates 2 times over the next 3 years – not exactly a stunning pace – but more importantly the first hike could arrive only in 12 months (Q3’18 has been mentioned). Furthermore the Bank sees risks to domestic outlook from uncertainty and has lowered GDP projection.
However, data from the UK continues to impress. The UK’s services PMI for July came in at 53.8 while the estimate suggested a marginally lower reading at 53.6. The reading came on the heels of final releases from other European economies. Let us recall that there were manufacturing as well as construction PMIs from the UK earlier this week. The former proved to beat expectations, in turn, the latter turned out weaker suggesting a further contraction in UK’s construction output.
As for the USD, the last significant US data release ahead of tomorrow’s NFP has disappointed the markets with the ISM non-manufacturing PMI for July dropping to 53.9 from 57.4 previously. The reading is the lowest since last August’s and comes in well below the consensus expectation of a 56.9 print. Meanwhile, the weekly initial jobless claims in the US have come in slightly better than expected with a print of 240k coming in marginally lower than the 242k expected. The prior reading saw a minor adjustment higher of 1k to 245k but overall the theme here remains as it has been for the past couple of years – one of strength in the US labour market.
There has been a small rise seen in Silver today, but recent trade has seen some worrying developments for longs in this market. The precious metal has enjoyed a good run up over the past month after something of a capitulation at the start of July but the recent price action could be seen to suggest that the market is now set to resume its downtrend. Especially if the NFP beats expectations and wages come out higher than expected.