Unanimous BoE Interest Rate Hike Fails to Boost Pound

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Headlines

  • Widening Trade Surplus Boosted AUD Exchange Rates – Strong domestic data outweighs market jitters
  • Unanimous BoE Rate Hike Failed to Shore up Pound – Policymakers expected to leave interest rates on hold for foreseeable future
  • Hawkish Fed Signalled September Interest Rate Hike – US Dollar benefits as central bank shrugs off political pressure
  • Solid Eurozone Retail Sales Forecast to Benefit Euro – Confidence in outlook of currency union remains limited



Australian Dollar

The Australian trade surplus widened further than forecast in June, encouraging confidence in the health of the domestic economy. This offered support to the Australian Dollar even as the general sense of market risk appetite diminished. As trade tensions between the US and China continued to mount this gave investors fresh cause for caution on Thursday, with fears of a full-blown trade war still hanging over the global outlook.

As forecasts point towards an uptick in second quarter Australian retail sales AUD exchange rates could remain on a stronger footing today.

Sterling

While the Bank of England (BoE) surprised markets with a unanimous vote to raise interest rates this failed to boost the Pound for long. Even though all nine members of the Monetary Policy Committee (MPC) supported this rate move the underlying message was still more dovish in nature. Comments from Governor Mark Carney highlighted a belief that policy ‘needs to walk not run to stand still’, suggesting that monetary tightening is likely to remain on a gradual path for some time to come.

However, Sterling could find a rallying point this evening if the latest UK services PMI demonstrates greater signs of resilience.

Euro

Better-than-expected Eurozone producer price index data was not enough to shore up the Euro yesterday. Even though price pressures picked up in June the mood towards the single currency remained bearish, with confidence in the Eurozone inflation outlook still limited. Markets remain concerned by the weaker nature of recent Eurozone growth data, which suggests that the currency union is struggling to regain its lost momentum.

A solid showing from June’s Eurozone retail sales data may offer a boost to EUR exchange rates, though.

US Dollar

As the Federal Reserve signalled that its next interest rate hike is likely to come in September the appeal of the US Dollar picked up. Investors took comfort in the continued hawkishness of the Fed’s outlook, indicating that recent political pressure has failed to alter the central bank’s stance on monetary policy. Better-than-expected jobless claims figures offered additional support to USD exchange rates overnight, boosting market hopes ahead of the latest labour market data.

If the US jobs market continues to tighten and pull down the unemployment rate the US Dollar may extend its bullish run further.

Canadian Dollar

The latest escalation in trade tensions between the US and China weighed heavily on the Canadian Dollar. CAD exchange rates came under pressure as the Trump administration’s latest bout of protectionist rhetoric suggested that tariffs on Chinese imports could rise from 10% to 25%. Such an increase would damage the global economy, leaving the Canadian Dollar on the back foot on Thursday.

Even if oil prices recover ground today the Canadian Dollar may struggle to find support in the absence of a wider sense of market risk appetite.

New Zealand Dollar

Demand for the New Zealand Dollar weakened further yesterday in the absence of fresh domestic data. A stronger US Dollar and rising global trade tensions both weighed heavily on NZD exchange rates, encouraging investors to sell out of the risk-sensitive currency. If the US continues to ramp up the pressure on China the New Zealand Dollar is likely to fall further out of favour.

Any further souring of international trade relations could prompt further NZD weakness ahead of the weekend.



Data Released

August 3rd 08:30 AUD Services PMI (JUL) 
August 3rd 11:30 AUD Retail Sales ex Inflation (QoQ) (2Q) 0.8%
August 3rd 18:30 GBP Services PMI (JUL) 54.7
August 3rd 19:00 EUR Eurozone Retail Sales (YoY) (JUN) 1.4%
August 3rd 22:30 USD Change in Non-Farm Payrolls (JUL) 193,000

Post by TorFX

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