Market News & Insights
5 September 2013

BOE and ECB Interest Rates Decisions

EUR/USD 1.3177
GBP/USD 1.5600
GBP/EUR 1.1837 (0.8446)
EUR/CHF 1.2395
GBP/CHF 1.4671
GBP/AUD 1.7080

Britain’s services industry has been growing at a faster rate since 2006, casting fresh doubt on the BOE’s stance on keeping interest rates unchanged until mid-2015. With PMI figures for August reaching 60.5 sending the British economy soaring to its highest level since 2008, further proof that the UK economy is growing at some speed, putting Mark Carney under a little pressure. The market seems to be correcting itself and effectively doing Mr Carneys Job for him. The BOE’s stance is simple, keeping interests low until unemployment rate hits 7% or lower, this would mean 700k jobs created with a target of mid-2016, could the recent strong PMI and construction figures showing a faster growing UK economy make the BOE revise its forecast of mid-2016? Yes, according to many analysts in the city, with some analysts suggesting that the BOE will be forced to tighten up monetary policy well before 2016.

With GBP/EUR trading in a range of 1.1800/60 over the past couple of days it is finding it hard to get breech the 1.19 mark and area we have not enjoyed since January. 12’oclock sees the BOE announce their latest rate decision and Asset purchase facility today there is little other real news to speak of today.

So far this weeks data out of Europe has all been relatively positive for the EUR as we saw Italian manufacturing production data increase at its fastest rate in 28 months. While in Spain the number of people registered as jobless fell marginally for August. Both countries had similarly important data out yesterday in the form of Services PMI.
As we have said before we need to see Europe’s peripheral countries starting to perform and yesterday’s releases showed some positive signs for the Eurozone. Spain’s services activity increased for the first time in 26 months beating expectation and coming in at 50.4. This is the first time since July 2011 that Spain has been over the 50.0 mark and more importantly indicates industry expansion. The data out of Italy while not as impressive as Spain’s and coming in below expectation was still its strongest reading since June 2011 and at 48.8 its heading in the right direction.

However this data compiled with positive Services PMI readings from both Germany and France didn’t seem to reflect the Eurozone’s as a whole as the overall reading for the month of August was 50.7, down 0.3 from July’s and the expected figure. However overall Europe is showing signs of a brighter economic outlook, therefore today we would expect the European Central Bank to leave its key interest rate unchanged at a record low of 0.5 per cent.

While the US has enjoyed some positive news of late, yesterday saw the only real announcement of Trade Balance figures with analysts originally predicting -37.7b versus -39.1b. With the Trade deficit widening in July from a nearly 4 year low it seems there is light at the end of the tunnel as more Americans imported Fuel and Automobiles showing signs that the world’s largest economy is picking up. While the recent tapering date has yet to be stated many believe that it will be October. Today sees a little more action coming out of the US with Unemployment claims, non-farm employment and ISM non-manufacturing.