Market News & Insights
24 April 2015

BOE Minutes Upbeat

EUR/USD 1.0713
GBP/USD 1.4970
GBP/EUR 1.3976 (0.7156)
EUR/CHF 1.0363
GBP/CHF 1.4484
GBP/AUD 1.9355

The decline in the euro over the past couple of months against its majors came as little surprise with the common currency being weighed down by issues in Greece, negative interest rates, deflation and QE to name but a few. However the decline of the pound, particularly against the dollar may have surprised some. It was only last year when investors were calling for the BoE to raise rates, with the BoE Governor himself heightening expectations of such an event. What market analysts may have overlooked though is the direct impact that the Eurozone woes, the UK’s largest trade partner, would have on the UK’s economy.

Today the UK has some inflation pressure of its own, with the latest CPI reading now at a new historic low of 0%, with the figure expected to average 0.1% this year. Growth forecast for 2015 have been revised down to 2.8% from 2.9%, while any talk of a potential rate hike has been pushed out to 2016. This has led the BoE to become more dovish in recent months, with the MPC vote of 9-0 in favour of keeping monetary policy unchanged becoming a somewhat formality. However yesterday’s minutes appeared to be modestly hawkish. Though all committee members agreed that it was appropriate to leave the stance of monetary policy unchanged, there were two members whose decision were finely balanced. It would now appear that comments from the BoE’s Chief Economist, Andy Haldane, who made the point that the next move in rates could be down rather than up, have been brushed under the carpet.

While we acknowledge that the UK’s economy is still a bit away from talk of a rate hike, the MPC sees the new signs of life from the Eurozone economy as positive. Yesterday’s performance in the pound was its best in about a month and could signal a change in fortunes. The pound climbed as far as GBPUSD 1.5080, while the euro slid to .7120, reaching levels not seen since mid-March. The pound has since eased back this morning, and is back to below GBPUSD1.50.

In the Eurozone, Greece continues to remain at the forefront with time once again running out for Athens to avoid defaulting on its debt and being ejected from the 19 member Eurozone. Greece has found few allies of late and their hard stance on European creditors has started to see the Syriza Party’s popularity slid in Greece.

Already this morning we had a poor reading from the Chinese manufacturing sector, as it posted its lowest reading of the year. This downward forecast theme has continued throughout this morning with German, French and Eurozone manufacturing PMI all missing expectations. We also had the latest retail sales announcement from the UK where the reading was below expectation coming in at -0.5% vs 0.4% expected. Later on in the day we have the weekly US jobless claims due and US New Home Sales.