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Real

Pound falls after Carney puts a brake on rate hike expectations

GBP

The pound weakened on Thursday after the BOE adopted a more doveish stance than was expected.

The minutes of the rate meeting, released right after the meeting, showed one member voting for an immediate rate hike – Ian McCafferty – when the consensus estimate had been for two; this was, therefore, seen as a doveish result.

Furthermore the bank revised down its inflation forecasts to 0.3% in 2015 from 0.6% estimated in May. A combination of low oil prices and the strength of the pound reducing the cost of imports were seen as the main reasons for the revision. In his press conference Carney underscored the weak trend in inflation by saying that: “the most striking development in the U.K over the past year is fall in CPI – due mainly to food and energy.” It is thought sluggish price growth could be one of the most important factors holding back the BOE from raising rates in the near-term.

In the press conference with BOE governor Carney, after the meeting, he added qualifications to his previous remarks about forward guidance, in which he had expected a rate hike by the end of the year. This time he said: “the likely timing of the first bank rate rise is drawing closer,” yet “the exact timing of the first move cannot be predicted in advance,” and would be the product of “economic developments and prospects.” This too was seen as a marginally doveish retraction.

USD

The dollar fell on Thursday, despite positive data, as investors continued to digest the previous day’s doveish FOMC, however, solid jobs data looked set to keep September rate hike hopes alive.

Initial Jobless Claims for week-ending Aug 1 rose to a lower-than-expected 270k from 267k previously, when a rise to 273k had been expected. The 4-week moving average fell to 268,250 – the lowest level for decades – and a decrease of 6.5k from the previous week.

Continuing Claims fell to 2255k from 2267k previously – undershooting analysts estimates.

Challenger Job Cuts rose by 125.4% in July, from 42.7% previously.

EUR

The euro rebounded on Thursday after data showed an unexpected rise in Factory Orders and Retail PMI.

German Factory Orders in June increased by 7.5%, from 4.5% previously, when expectations had been for a lesser rise to 5.2%. On a month-on-month basis they rose by 2.0% from -0.4% previously, when they had been forecast to increase by 0.3%.

Euro-zone Retail PMI, meanwhile, rose to 54.2 from 50.4 in July. German, French and Italian Retail PMI’s all showed rises from the previous month, and all gave results over 50, which indicates expansion.

German Construction PMI fell a basis point to 50.6 in July.

Reports from the E.U suggested they wanted to finalise a bailout deal with Greece by no later than the 20th August. Greek CPI data for July showed a continued decrease of -2.2%, the same as previously; analysts had estimated a slight slowing to -2.0%.

JPY

The yen traded a little higher on Thursday after traders corrected their positions following comments contradicting Fed Lockhart’s earlier hawkish prediction that the September rate hike was “in the bag”. The yen was trading at 124.60 per dollar at the end of the London session

The currency traded at multi-year lows versus the dollar and sterling. Its depreciation has been more pronounced over the past year spurred by the BOJ´s additional stimulus in October 2014, when the central bank surprised the markets by announcing an expansion of its asset buying programme to an annual pace of 80 trillion yen.

The market remains sceptical that the 2.0% inflation target will be met as the economy has struggled to make meaningful improvements since it bounced back from recession last year.

GBP

The pound weakened on Thursday after the BOE adopted a more doveish stance than was expected.

The minutes of the rate meeting, released right after the meeting, showed one member voting for an immediate rate hike – Ian McCafferty – when the consensus estimate had been for two; this was, therefore, seen as a doveish result.

Furthermore the bank revised down its inflation forecasts to 0.3% in 2015 from 0.6% estimated in May. A combination of low oil prices and the strength of the pound reducing the cost of imports were seen as the main reasons for the revision. In his press conference Carney underscored the weak trend in inflation by saying that: “the most striking development in the U.K over the past year is fall in CPI – due mainly to food and energy.” It is thought sluggish price growth could be one of the most important factors holding back the BOE from raising rates in the near-term.

In the press conference with BOE governor Carney, after the meeting, he added qualifications to his previous remarks about forward guidance, in which he had expected a rate hike by the end of the year. This time he said: “the likely timing of the first bank rate rise is drawing closer,” yet “the exact timing of the first move cannot be predicted in advance,” and would be the product of “economic developments and prospects.” This too was seen as a marginally doveish retraction.

USD

The dollar fell on Thursday, despite positive data, as investors continued to digest the previous day’s doveish FOMC, however, solid jobs data looked set to keep September rate hike hopes alive.

Initial Jobless Claims for week-ending Aug 1 rose to a lower-than-expected 270k from 267k previously, when a rise to 273k had been expected. The 4-week moving average fell to 268,250 – the lowest level for decades – and a decrease of 6.5k from the previous week.

Continuing Claims fell to 2255k from 2267k previously – undershooting analysts estimates.

Challenger Job Cuts rose by 125.4% in July, from 42.7% previously.

EUR

The euro rebounded on Thursday after data showed an unexpected rise in Factory Orders and Retail PMI.

German Factory Orders in June increased by 7.5%, from 4.5% previously, when expectations had been for a lesser rise to 5.2%. On a month-on-month basis they rose by 2.0% from -0.4% previously, when they had been forecast to increase by 0.3%.

Euro-zone Retail PMI, meanwhile, rose to 54.2 from 50.4 in July. German, French and Italian Retail PMI’s all showed rises from the previous month, and all gave results over 50, which indicates expansion.

German Construction PMI fell a basis point to 50.6 in July.

Reports from the E.U suggested they wanted to finalise a bailout deal with Greece by no later than the 20th August. Greek CPI data for July showed a continued decrease of -2.2%, the same as previously; analysts had estimated a slight slowing to -2.0%.

JPY

The yen traded a little higher on Thursday after traders corrected their positions following comments contradicting Fed Lockhart’s earlier hawkish prediction that the September rate hike was “in the bag”. The yen was trading at 124.60 per dollar at the end of the London session

The currency traded at multi-year lows versus the dollar and sterling. Its depreciation has been more pronounced over the past year spurred by the BOJ´s additional stimulus in October 2014, when the central bank surprised the markets by announcing an expansion of its asset buying programme to an annual pace of 80 trillion yen.

The market remains sceptical that the 2.0% inflation target will be met as the economy has struggled to make meaningful improvements since it bounced back from recession last year.



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