GBP/USD Fundamental Forecast – September 16, 2016

The GBP/USD 1.3237 making no moves after The Bank of England held fire and kept its key interest rate on Thursday, after reducing it to a record low last month, as recent data suggested that the economy is set to escape a recession after the initial ‘Brexit’ shock. The Monetary Policy Committee held its key bank rate at 0.25 percent and the quantitative easing at GBP 435 billion in the policy meeting on September 15.

Policymakers had lowered the key rate by a quarter-point in August, which was the first cut in more than seven years. The bank also boosted its asset purchase program by GBP 60 billion.

Last week, BoE Chief Mark Carney was criticized by lawmakers in a hearing for being too pessimistic after the ‘Brexit vote’. He was also asked to justify the loosening stance adopted in August.

UK retail sales decreased at a slower-than-expected pace in August, after rebounding in the previous month, data from the Office for National Statistics showed Thursday. Retail sales volume including automotive fuel dropped 0.2 percent month-over-month in August, reversing a 1.9 percent climb in July. Sales were expected to fall by 0.4 percent.

Likewise, excluding auto fuel, retail sales volume declined 0.3 percent from July, when it grew by 2.1 percent. That was below the 0.7 percent decrease expected by economists.

With a crucial Federal Reserve policy meeting on September 21, the Fed has imposed a blackout period on public comments from FOMC members. This will allow the markets to be completely focused on Thursday’s key releases. The US will publish retail sales, PPI, the Philly Fed Manufacturing Index and unemployment claims. Retail Sales will be closely watched, as a weak reading will likely reduce the odds of a Fed rate hike. Recent comments from Fed officials have been almost contradictory and failed to shed any light on the Fed’s monetary plans. On Monday, FOMC member Lael Brainard sounded cautious, saying it would be prudent to maintain a loose monetary policy. Brainard noted global uncertainties and weak inflation as reasons for the Fed not to rush into raising rates. This dovish message was in marked contrast to remarks from FOMC member Eric Rosengren last week, who came out in support of a rate hike, without providing a timeline. Rosengren said that “tightening is likely to be appropriate”, and went as far as to say that the US economy could overheat if the Fed didn’t act soon. As things currently stand, a September hike has been priced in at 15%, while the likelihood of a December move is 43%.

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 September 16, 2016

Government Bond Auctions

Date Time Country Auction

Sep 15 10:30 Spain 0.75% Jul 2021 Bono, 1.3% Oct 2026 bond & 1.95% Jul 2030

Sep 15 10:50 France Eur 5-6bn 0% Feb 2019 & May 2021 OATs

Sep 15 11:03 Sweden Sek 0.5bn 0.125% Jun 2019 I/L & Sek 0.5bn 4% Dec 2020 I/L

Sep 15 11:50 France Eur 0.75-1.25bn 0.1% Mar 2021 & Mar 2025 OAT

Sep 19 11:00 Belgium Holds OLO auction

Sep 20 11:30 UK Jul 2047 Gilt

Sep 21 10:30 Denmark Holds bond auction

Sep 21 11:03 Sweden Holds bond auction

Sep 21 11:30 Germany Eur 4bn 0% Oct 2021 Bobl

Sep 22 17:20 Italy Announces details of bond auction