Sterling falls on “Super Thursday” despite Bank of England split decision

Enrique Díaz-Álvarez07/Aug/2015Currency Updates


For the first time in its 321 year history, the Bank of England yesterday released its monthly interest rate decision, monetary policy meeting minutes, and quarterly Inflation Report simultaneously, in what many economists had dubbed “Super Thursday”.

As was widely expected, the central bank left its benchmark interest rate unchanged at 0.5%. However, the Bank of England surprised almost everyone, with just one of the nine members, long standing hawk Ian McCafferty, voting for a rate increase, after two or three dissenters were anticipated.

While members judged that risks from the Greek crisis had faded, policymakers appeared concerned over the strength of the Pound, and the disinflationary impact that this could have. The near term inflation outlook was deemed “muted”, due to a fall in energy prices, although it is still expected to return to the 2% target, in line with previous forecasts. On the hawkish side, the minutes noted that productivity growth was finally on the rise, while economic growth forecasts for this year were revised upwards from 2.5% to 2.8%. The growth in wages, which last month rose to 3.2%, is also expected to firm, which would counterbalance the drag on inflation from Sterling. Governor Carney claimed the timing of an interest rate hike could not be predicted in advance, and would be data dependant.

Despite the generally dovish tone from policymakers, we believe that the first split vote this year still puts the Bank of England on track for a rate increase in the first quarter of next year. We expect a slow build up towards a majority, with a hike still likely at the February meeting. However, markets were clearly caught wrong footed by the lack of more votes for an immediate increase yesterday, hence the sharp depreciation of Sterling against its peers, down by 0.7% versus the US Dollar and by 0.8% against the Euro.


Amidst gains versus Sterling, the Euro had a relatively subdued session against the US Dollar, ending the day unchanged versus the Greenback.

Yesterday was a quiet day in the Eurozone economy, with little in the way of economic announcements or releases. Early in the day, German factory orders smashed all expectations, increasing by the most so far in 2015. The June figures from Destatis rose by 2% from May alone, a massive 7.2% higher than the same month a year previous. The sharp increase was driven almost entirely by foreign demand, which rose by 4.8% in a single month. Elsewhere, the unemployment rate in Greece improved to its lowest rate in three years, although still at a lofty 25%.

This morning we’ll see the release of industrial production and trade data in Germany and France, although focus will be on the nonfarm payroll release in the US.


Gains against Sterling yesterday gave the US Dollar a boost ahead of today’s labour report. The US Dollar index ended the London session 0.15% higher.

With attention firmly on the UK on yesterday, events in the US largely went under the radar. Weekly jobless claims came in slightly better than anticipated at 270,000, compared to the previous week’s 267,000. This marked the 22nd straight week of claims under 300,000, a threshold associated with a strengthening labour market. The more representative four week moving average of claims improved further, down by over six thousand to 268,250.

The key announcements keep on coming in the major economies today. At 1.30pm today, the US Department of Labor will be releasing its much anticipated monthly labour report for July, including the latest nonfarm payroll figure. The general consensus is for a figure in the region of around 200-220K. We believe that, absent any surprises to a sub-150K level in the next two reports, and we’ll see an interest rate hike by the Federal Reserve at their September meeting.

Rest of the world

The Czech central bank reinforced its commitment to maintaining its de-facto peg against the Euro. The Russian Ruble hit a fresh five month low as oil prices slipped below $50 a barrel, while the Chinese Yuan remained steady, despite the IMF delaying proposals to add the currency to the special drawing rights (SDR) basket.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.