British Pound Weakens as Bank of England Members Show less Support for Rate Hike

James Hyerczyk

Commodity and foreign currency trading was mixed on Thursday. Volume and volatility were also low ahead of tomorrow’s major U.S. Non-Farm Payrolls report.

There was news out of the U.K. today. The GBP/USD broke after minutes from a meeting of Bank of England policymakers showed less support for an interest rate hike. BoE officials voted 8 to 1 to hold rates steady. Some speculators were betting on a 7 to 2 decision.

Today marked the first time that the minutes from a meeting of the Monetary Policy Committee were released concurrently with a new policy vote and a quarterly report on inflation expectations.

The Minutes showed the most MPC members believe it might be too soon to raise interest rates, with the Sterling’s strength offsetting rising inflation as the U.K.’s labor market grows tighter. According to the latest interest-rate swap transactions, traders are now pricing in a possible rate hike in May 2016.

The EUR/USD traded sideways-to-higher on light volume. Position-squaring was largely responsible for the slight rally ahead of tomorrow’s U.S. Non-Farm Payrolls report. Investors expect the report to show the economy added about 224K new jobs in July. This report is important because it could help dictate the timing of the first Fed interest rate hike since 2006.

December Comex Gold futures rose on Thursday ahead of Friday’s jobs report. Oversold conditions and low volatility helped underpin the market. The current consolidation chart pattern suggests investors should be preparing for a volatile reaction to tomorrow’s report.

With investors pricing in a reading of 224K new jobs, a number substantially above this estimate could see gold plunge to nearly $1000.00. A number less than the estimate could mean a $20 to $40 rally.

Oversupply concerns continued to pressure September Crude Oil prices on Thursday. Technically, the bearish momentum and severely oversold conditions continue to feed on themselves, driving prices closer to the psychological $40.00 level.

Wednesday’s U.S. Energy Information Administration weekly supply/demand report showed a decline in U.S. crude oil inventories, however, the weakness was overshadowed by an increase in gasoline stockpiles and other finished products. U.S. oil production rose last week by 52,000 barrels to 9.5 million barrels a day.

 Worries about China’s economy, expectations of increased production from Iran over the near-term and worries that the end of the summer driving season could lead to higher gasoline inventories also weighed on crude oil prices. 

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