UK braced for historic Bank of England “Super Thursday”
06/Aug/2015 • Currency Updates•
Sterling appreciated against its peers in the lead up to today’s Bank of England announcements, dubbed as “Super Thursday”. The Pound rose by 0.3% versus the Dollar and 0.1% against the single currency, despite worse than expected service sector growth.
Latest data from Markit suggested that the UK service sector remained strong in July, although grew slightly less than a month previous. The flash PMI fell to 57.4 from 58.5 in June, despite new business increasing to its fastest rate in three months, as hiring eased to its slowest pace since March 2014. Yesterday’s data, combined with similar surveys from Markit, pointed to growth in the first three months of around 0.6%. This is slightly down on the 0.7% that was recorded in the second quarter.
Today marks a historic day for the Bank of England, which is set to release its interest rate decision, monetary policy meeting minutes and quarterly inflation report all in the same day for the first time. This is set to take place at midday, with Mark Carney down to speak 45 minutes later. The interest rate is expected to remain unchanged; however, the key will be the voting pattern, which is expected to be split for the first time since January. We expect three, possibly even four dissenters to vote for an immediate hike. Three dissenters would put the Bank of England firmly on course for an interest rate hike in February next year, while an unprecedented four votes for an increase would bring forward a hike to the October or November meetings. Regardless, Sterling volatility is anticipated, and could mark one of the most volatile days trading for Sterling so far this year.
Despite briefly dipping against the US Dollar yesterday afternoon, the Euro ended the London session 0.35% higher.
There was some disappointing retail sales data out of the Eurozone economy. Sales in June fell sharply in the Euro-area, down by 0.6% on a month previous to just 1.2% growth on an annualised basis. This is less than half that recorded in May and its lowest since October last year. According to Eurostat, sales declined by as much as 2.3% in Germany, in a major blow over hopes that low unemployment and rising wages in Europe’s largest economy would bolster economic performance.
Earlier, Spain’s services industry emerged as the fastest growing among the four major Eurozone countries. The services PMI in Spain soared to 59.7 from 56.1, tipping the overall Euro-area index to 54.0 in July, slightly up on expectations. European economies, it seems, showed resilience in the face of the Greek crisis, with these figures consistent with quarterly growth of around 0.4%.
Factory orders in Germany this morning the only major announcement in the Eurozone today, with the Bank of England and US nonfarm payroll announcements likely to steal the show.
The US Dollar index ended 0.1% lower yesterday after a couple of key announcements in the US disappointed expectations.
Firstly, the latest employment change from ADP showed that US private employers hired just 185,000 workers last month, the smallest increase since April and well down on the 215,000 that was anticipated. This does not bode especially well for today’s more comprehensive labour report, which includes both private and public sector workers. We also had the latest trade data from the Commerce Department, with the trade deficit widening further in July from $40.94 billion to $43.84 billion, a growth of 7%. Exports were down nearly three percent compared to last year, driven lower by turbulence in Europe and an economic slowdown in China.
Elsewhere, non-manufacturing sector growth rose to its highest since the inception of ISM’s composite index in 2008, which rose from 56.0 to 60.3. The figure was in sharp contrast to Monday’s manufacturing survey, and reinforces our view of a strong US economy and acceleration in growth in the second half of the year.
Events in the US are likely to be overshadowed by the Bank of England today. Jobless claims will be worth nothing, especially in the run in to tomorrow’s all-important labour report.