It’s Super Thursday! Which Way Will the Pound Go?

It’s Super Thursday and the Pound will undoubtedly see some volatility through the day as the markets position ahead of the BoE Monetary Policy Committee’s interest rate decision, release of the BoE inflation report and monetary policy meeting minutes and BoE Governor Carney’s press conference.

There’s been plenty of speculation of what lies ahead for the pound, monetary policy the primary focus for the markets, with the British government’s negotiations on the terms under which Britain leaves the EU being a secondary factor for now, with so long to go before commitments are made to key terms, which include trade terms with EU member states.

In the last MPC meeting, the markets responded to the increased level of dissent, where 3 members of the MPC had voted in favour of a rate hike. Since the June MPC, we have heard hawkish Committee member commentary, with the BoE’s chief economist and MPC voting member Haldane talk of his likely support for a shift in monetary policy, BoE Governor Carney take a more hawkish stance, the most hawkish MPC member Kristin Forbes depart and Silvano Tenreyro join the Committee.

Macroeconomic data out of the UK has been mixed since the June meeting, with economic growth in the 2^nd quarter disappointing and inflation easing from the highs seen in May, the combination of which certainly suggests that the BoE will be on hold later today, the unknown being whether Haldane and Carney dissent and whether McCafferty and Saunders continue to vote in favour of a hike following their votes in June.

July private sector PMI figures this week have been mixed this week, with the manufacturing sector seeing a pickup in activity, whilst the pace of expansion in the construction sector slowed significantly, though this morning’s sector PMI numbers will be of far greater influence, the UK services sector accounting for 80% of the UK economy.

So, with the PMI data out ahead of the MPC decision, any upward moves may be on hold and the markets will have little time to digest the BoE’s Inflation Report upon release. How the BoE projects inflation over the near-term will be a key consideration in today’s MPC decision, with inflationary pressures having weighed on domestic consumption…

We could see the pound rally to $1.35 levels through the week should we see the BoE point to an imminent move, though some caution is needed with Carney certainly capable of flip flopping on his view on monetary policy, which could ultimately be the decisive vote later today, if Haldane, McCafferty and Saunders dissent, a split vote leaving the BoE Governor with the final decision.

While focus through the day will be on the pound, the markets will also need to be mindful of the EUR and the Dollar, with the EUR having hit an intraday high $1.19113 on Wednesday. The July ADP nonfarm employment change figures out of the U.S failed to inspire ahead of Friday’s government numbers, despite the upward revision to the June numbers, with market sentiment towards the Eurozone economy continuing to improve. Today’s ECB Economic Bulletin will provide the markets with further guidance on where the ECB sees the Eurozone economy in the coming quarters, which will more than likely lead to increased speculation on when the ECB will begin tapering its asset purchasing program.

At the beginning of the year, the markets were expecting the Dollar to be a dominating force through the year on hopes of a rapid acceleration in the U.S economy and Trump’s growth policies. Neither have materialized and the Dollar has had a horror of a year. Adding to the Dollar’s woes is a shift in FOMC member views on monetary policy as hawks become doves, with non-voting FOMC member Mester talking of a need to be more cautious on policy, Mester having previously been a voting member who had frequently dissented in favour of a move, while others preferred to hold.

For the pound, it’s going to boil down to how things unfold in today’s MPC meeting and Carney’s comments in this morning’s press conference, while the Dollar Bulls will be looking ahead to tomorrow’s nonfarm payroll and wage growth figures, the EUR on track to hit $1.20 levels in August and sooner rather than later should the ECB’s Economic Bulletin and today’s finalized service sector PMI figures impress and nonfarm payrolls and wage growth disappoint tomorrow, an outcome that is more than a possibility.

At the time of the report, the Dollar Spot Index was up 0.11% at 92.942, with the EUR down 0.08% at 1.1846 and the pound flat on the day, the Dollar having found support through Asian session in recent days only to stumble through the U.S Session.