Bank of England Rate Hike Widely Expected

The Bank of England is widely expected to hike interest rates today. The decision and updated guidance will be key for the pound.

Previous Day's Market Highlights

Rates continued to hold in familiar ranges yesterday. The UK’s Manufacturing PMI fell more than forecast to 54.0 from 54.3 but had a limited impact on the pound. US ADP Employment Change surprised to the upside, increasing expectations for Friday’s NonFarm Payrolls release. The US ISM Manufacturing PMI disappointed, dropping from 60.2 to 58.1.
 
As expected, the Fed kept interest rates on hold. The dollar had a muted immediate reaction to the decision but was firmer overnight, benefiting from the Fed’s upgrade of its view on growth to “strong” from “solid”. The Fed remains on track to hike interest rates again in September.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1250 1.1348 1.1163 1.63%
GBP/USD 1.3084 1.3363 1.2958 3.03%
EUR/USD 1.1630 1.1791 1.1575 1.83%
GBP/AUD 1.7730 1.7958 1.7569 2.17%
GBP/NZD 1.9318 1.9584 1.9198 1.97%
GBP/CAD 1.7031 1.7479 1.7014 2.66%

Today's Market Highlights

All eyes are on the Bank of England, which is widely expected to announce a 25-basis point hike to 0.75%--with the move priced in by up to 90%. As this move is largely expected and future hikes are expected to be limited and gradual, the additional upside for the pound may be relatively limited, although there could be an initial move higher. On the other hand, should the Bank surprise markets by holding steady, the pound could weaken more sharply.
 
It is a Super Thursday, with the release of the policy statement, meeting minutes, and quarterly Inflation Report. Additional volatility and guidance could be seen during the Inflation Report press conference (12:30) as investors interpret the decision and Governor Carney’s comments on the Bank’s latest inflation outlook and interest rate expectations.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:30am GBP Markit Construction PMI (Jul) 52.8 53.1
10:00am EUR Producer Price Index (YoY) 3.5% 3.0%
12:00pm GBP BoE Interest Rate Decision 0.75% 0.50%
12:00pm GBP Monetary Policy Summary & Minutes
12:00pm GBP Quarterly Inflation Report
12:30pm GBP Inflation Report Press Conference
3:00pm USD Factory Orders MoM (Jun) 0.7% 0.4%
12:50am JPY BoJ Monetary Policy Meeting Minutes

Caxton