Sterling looks to 'Super Thursday' UK economic projections

The Aussie and Kiwi dollars lose ground as focus shifts to today’s Bank of England meeting and PM May's trip to Brussels.

Previous Day's Market Highlights

The Australian dollar was the major mover on Wednesday, experiencing its biggest single-day fall in a year, after an overnight speech from RBA governor Lowe which was interpreted as dovish and a move to a more neutral bias. Despite keeping rates on hold earlier this week, Lowe stated that the probabilities of a rate hike or a rate cut appear to be “evenly balanced” with investors interpreting this as a sign that a rate cut is the most likely action that the RBA will take next. In reaction to the comments, the Aussie dollar lost around 1.5% with the antipodean currency falling to approximately 2-week lows against both the US dollar and the pound. Other commodity currencies were dragged down by the Aussie’s demise, with both the Canadian and New Zealand dollars losing more than 0.5%.
 
Other major currencies were relatively rangebound, though the pound did record its first gain in a week against the dollar, adding around 0.2%, despite the EU once again reaffirming that the Withdrawal Agreement was not up for renegotiation and reports that the UK was not expecting any concessions from the bloc. In the afternoon session, the dollar strengthened after trade data showed a narrower-than-forecast deficit, with the dollar index chalking up its fifth straight day of gains. As a result, the euro weakened to a near 2-week low against the greenback.

Overnight, the New Zealand dollar weakened by a further 0.5% after labour market figures for the final quarter of 2018 missed expectations in contrast to Q3’s strong report. Data showed that the unemployment rate increased sharply to 4.3% and employment change being only 0.1% on a quarter-on-quarter basis. Despite above-forecast wage growth, the data has increased expectations of the RBNZ delaying their first rate hike. 
 
In other markets, European equities closed in the red with markets in the UK, Germany and France all losing around 0.3% while, across the pond, US markets edged lower by approximately 0.2%. Finally, crude oil gained, with WTI adding around 2% after US inventories rose by more than expected. 

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1380 1.1604 1.1035 4.90%
GBP/USD 1.2926 1.3218 1.2667 4.17%
EUR/USD 1.1358 1.1570 1.1289 2.43%
GBP/AUD 1.8210 1.8522 1.7613 4.91%
GBP/NZD 1.9154 1.9426 1.8603 4.24%
GBP/CAD 1.7117 1.7498 1.6756 4.24%

Today's Market Highlights

The primary focus for the day looks set to be the latest policy announcement from the Bank of England (BoE), where unanimous expectations are for interest rates to be kept on hold at their current level of 0.75% with their quantitative easing programme also set to remain unchanged. However, this is a ‘Super Thursday’ meeting where the Bank release their latest inflation report, which includes projections for the UK economy and interest rates, as well as Governor Carney holding a press conference. It is likely that the BoE will attempt to strike a balance between flagging the downside risks to the economy of a no-deal Brexit while also leaving the door open for future hikes post-March. The BoE’s tightening bias is likely to be maintained as, despite a recent moderation in inflation, a tight labour market is likely to cause inflationary pressures going forward necessitating an increase in interest rates. Any overtly hawkish comments would likely see sterling strengthen, though any moves are likely to remain capped by the ongoing Brexit negotiations with the Prime Minister heading to Brussels for further talks today.

Away from the UK, the economic calendar is relatively sparse with the only other notable point being weekly jobless claims from the US. While the data has proved to be extremely volatile in recent weeks, expectations are for the figure to return to around 221k, more in line with the current trend. Elsewhere, no major economic data is on the calendar from the eurozone, while usually low-importance consumer spending figures will be released from Japan and the US.
 
Finally, a couple of central bank members are due to speak, with both ECB board member Mersch and Fed vice chair Clarida on the schedule. The latter’s comments are likely to be closely watched after the Fed’s dovish shift last week, with a reiteration of that stance and emphasis of patience over the timing of further rate hikes likely.

Today's Economic Calendar

Time Currency Release Consensus Previous
12:00 GBP Bank of England Interest Rate Decision 0.75% 0.75%
12:30 GBP BoE Gov. Carney Press Conference
13:30 USD Initial Jobless Claims 221k 253k