Bank of England analysis & Non-farms ahead
GBP: Super Thursday hits us early this afternoon, an important time for the currency because of the focus on possible tapering of the Bank bond-buying scheme.
GBP/EUR is pushing higher, with GBP gaining ground since yesterday afternoon to 1.1740 levels. GBP/USD’s upwards trend is capped by USD strength (see below), but seems keen to push up towards the 1.4000 level again (currently hovering around 1.3900).
As reported by Yoham Elam:
“…At least one dissenter is likely on the Bank of England's bond-buying scheme. Michael Saunders is seen as voting for tapering the bank's £895 billion program. If he is joined by Dave Ramsden or any other members, the pound could rise, but otherwise, caution would weigh on sterling…”
What is Super Thursday? .. it doesn’t happen each month, but it marks the BoE's triple release of its rate decision, meeting minutes and the quarterly Monetary Policy Report.
Deutsche Bank analysis provides us with a great argument for a wait & see approach from today’s meeting:
“….. With CPI inflation now running at 2.5% and above the BoE’s target, we see the MPC preaching a patient message with regards to the outlook for now, before a more hawkish pivot occurs later this year once there’s further clarity on the state of the economy coming out of the pandemic……”
USD: Yesterday, US (2nd tier) jobs data disappointed, but the spotlight was stolen by more Fed speakers. On balance, the USD index has been rising, as the retains some Covid-related fears as numbers in SE Asia and Australasia surge. EUR/USD sits at 1.1825 trading sideways
Friday we have Non-Farm Payrolls – the most important monthly US data by a long way, but the Fed last night let us know………..
, much of the rhetoric was laid out by ‘Fed-speak’ – notably Fed Vice Chair Richard Clarida said that he expects conditions for raising interest rates to be met by the end of 2020 ….. if inflation and employment outcomes meet his forecasts, as reported by Reuters:
Quotes
"Starting Fed rate hikes in 2023 is entirely consistent with US central bank’s framework."
"My forecasts for inflation, employment are similar to median of Fed policymakers’ June forecasts."
"Expecting assessment of maximum employment to be reached by end of 2022."
"In coming meetings, Fed will again assess progress toward our goals, will give advance notice of taper."
"If core inflation hits 3% this year, as expected, would consider it much more than a moderate overshoot of Fed’s goal."
EURO: Great data yesterday showed the Purchasing Managers’ Index (PMI), (seen as a gauge of economic health) climbed to 60.2 last month from June’s 59.5, its highest level since June 2006. FX markets reacted by stabilising the €€, but the ECB has already made clear it will not cut bond buying, nor react until inflation really takes hold.
On element of the data was very important in this respect, as widespread shortages of materials and poor transport availability pushed the factory input prices index to its highest reading since the survey began in June 1997. Perhaps inflationary pressure will eventually force the ECB’s hand – the FX market will be continually looking for hard data to back up yesterday’s reading.