Bank of England Bearish On Hiking Interest Rates
Overall then, yesterday’s BoE updates reinforce the view that there is no rush to start hiking interest rates. The surprisingly dovish tone from the BoE saw sterling lose around 1% on the day against a basket of other majors. Cable (GBP/USD) fell from its opening up near $1.54 to below $1.52, while EUR/GBP regained a footing above the 71p mark. Meantime, the EUR/USD pair was broadly unchanged on the day, trading around the midpoint of the $1.08-1.09 range.
Turning to the day ahead, all eyes are on the US where we get the much anticipated October non-farm payrolls number. This is in the context of the Fed adopting a more hawkish tone recently, forewarning markets that they would be considering a rate hike in December. Payrolls are forecast to increase by a strong 180k. Such a result would provide additional encouragement to the Fed to start tightening policy before the end of this year. The unemployment rate is expected to remain at 5.1%, a 7½-year low, while growth in earnings looks likely to pick up pace.
Overall, positive US labour market data today could increase market expectations of a December rate hike. Thus, we could see the dollar holding a firmer tone as we head into the weekend.
An insight into possible December interest rate move
Reuters this morning have a comprehensive article depicting the lead up to Janet Yellen stating last month that a December interest rate rise was a major possibility. The decision to be more forthright was born out of the Federal Reserve members become annoyed that the markets were not aligning to their comments.
Additionally last month William Dudley received an earful from bankers and investors in New York because the Fed were not being clear enough. So here we are, the Fed has stated that December is a real possibility. Thus all information regarding the economy throughout November and leading up to the December meeting will be vital. For the full story
Mark Carney key indicator – Core Inflation
Currently as core inflation and headline inflation are at a divergence of 1.1%. This has left Mark Carney with no other choice but to quote core inflation as one indicator that he likes to watch. Carney believes that core inflation is a guideline of where headline inflation could be in the future.
Currently core inflation is at 1.2%, and he has stated that the Bank of England will require more time to reach its headline inflation target of 2%. Read more
Euro area facing slow growth in 2016
The European Union on Thursday predicted the region’s economy will grow at “a modest pace” next year thanks to cheap energy and central bank stimulus, but remains hampered by low investment and high debt.
The recovery is being supported by several temporary factors, including low oil prices, the euro’s drop in currency markets — which helps exporters — and monetary stimulus from the European Central Bank.
The 19-nation eurozone is expected to see its economy grow by 1.6 per cent this year, 1.8pc next year and 1.9pc in 2017.
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