Retail Sales, the Leadership Race and the BoE Put the GBP in the Spotlight

Will the BoE continue to talk of the need to hike rates at an aggressive pace or has the economic data and shift in policy elsewhere caused a reevaluation…
Bob Mason
Bank of England

Earlier in the Day:

It was a busy Asian session this morning. On the economic data front, New Zealand 1st quarter GDP numbers provided direction.

Later in the session, the Bank of Japan delivered its June monetary policy decision.

It goes without saying that the majors continued to respond to the FOMC economic projections and FED monetary policy outlook.

For the Kiwi Dollar

The New Zealand economy grew by 0.6% in the 1st quarter, which was in line with forecasts. The economy grew by 0.6% in the 4th quarter. According to NZ stats,

  • Construction was the main contributor to growth in the 1st quarter, rising 3.7% off the back of a 2.2% rise in the 4th.
  • In stark contrast, the services industry grew by just 0.2%, the lowest quarterly growth since Sep-12. With the services sector representing almost two-thirds of the economy, it contributed just 0.1 basis points to the 1st quarter GDP.
  • The annual GDP for the year ended March 2019 was 2.7%.

The Kiwi Dollar moved from $0.65360 to $0.65581 upon release of the figures. At the time of writing, the Kiwi Dollar was up by 0.55% to $0.6574.

For the Japanese Yen

The Bank of Japan held interest rates unchanged at -0.1% this morning. According to the latest monetary policy statement,

  • By a majority vote of 7-2, the BoJ voted in favor of purchasing JGBs so that 10-year JGB yields will remain at around 0%.
  • By a unanimous vote, the BoJ will purchase ETFs and J-REITs so that their amounts outstanding will increase at a pace of ¥6tn and ¥90bn respectively. The Bank will maintain CP and corporate bond levels at about ¥2.2tn and ¥3.2tn respectively.

On the outlook, the Bank intends to maintain the current monetary policy environment until at least the spring of 2020.

The Japanese Yen moved from ¥107.59 to ¥107.618 against the greenback upon the decision and release of the monetary policy statement. The BoJ press conference later this morning may have more of an influence on the Yen…

At the time of writing, the Japanese Yen was up by 0.46% to ¥107.598 against the U.S Dollar.

Elsewhere

At the time of writing, the Aussie Dollar was up by 0.20% to $0.6895.

The Day Ahead:

For the EUR

It’s a relatively quiet day ahead for the EUR.

There are is no economic data scheduled for release through the early part of the day. A lack of stats will leave the market focus on the release of the ECB Economic Bulletin later this morning.

Later in the day, the Eurozone’s flash consumer confidence will also provide direction to the EUR. We’ve seen the EUR particularly sensitive to consumer confidence figures of late, so expect a move.

Draghi could curtail any upside should the numbers impress, however. With the FED turning dovish, Draghi may look to respond.

At the time of writing, the EUR was up by 0.38% to $1.1269.

For the Pound

It’s a big day for the Pound.

In the early part of the day, UK retail sales figures will provide direction to the Pound ahead of the BoE’s June monetary policy decision.

There had been plenty of speculation that resilience in the UK economy had been attributed to the April Brexit deadline.

If manufacturing and industrial production, GDP numbers and the latest inflation figures are anything to go by, the BoE may need to temper any talk of a rate hike.

Retail sales figures are expected to pin the Pound back ahead of the BoE monetary policy decision.

Following on from the retail sales figures, while the markets are expecting the BoE to hold rates unchanged, any dovish talk would sink the Pound.

Monetary policy divergence favored the Pound late on Wednesday. The upside came off the back of Carney’s talk of an aggressive rate hike path and the FED’s projections of up to 2 rate cuts this year.

It’s not just the economic calendar that is in focus today, however.

From the UK Parliament, the leadership race goes into its final set of ballots that will deliver two candidates to go head-to-head into Saturday’s vote.

Rory Stewart’s exit from the race on Wednesday leaves Jeremy Hunt to fly the soft Brexit flag…

At the time of writing, the Pound was up by 0.36% to $1.2685.

Across the Pond

It’s a relatively busy day for the Greenback.

Economic data due out of the U.S includes the weekly jobless claims, 1st quarter current account, and June Philly FED Manufacturing PMI numbers.

Barring particularly dire initial jobless claims figures, the focus will be on the Philly FED manufacturing PMI. Forecasts are Dollar negative.

Following the FOMC press conference and economic projections, weak numbers may be of limited influence, however. The FED’s immediate focus will be on next week’s Trump – Xi meeting.

At the time of writing, the Dollar Spot Index was down by 0.22% to 96.902.

For the Loonie

Following impressive May inflation figures on Wednesday, a lack of stats will leave market sentiment towards the FED and sentiment towards the U.S – China trade war to provide direction.

While risk appetite returned on news of a planned Trump – Xi meeting, there’s a long way to go before there’s an actual resolution.

The Loonie was up by 0.31% to C$1.3239, against the U.S Dollar, at the time of writing.

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