Pound Sterling (GBP) Leaps on Back of Surprise Bank of England Vote Split
The Bank of England (BoE) created shockwaves yesterday when it revealed that the vote to leave interest rates on hold came in at a 5-3 split. Economists expected the vote to be a clear cut 7-1, with Kristin Forbes – soon to be leaving – being the lone vote for raising. This revelation sent Sterling leaping against most of the majors as traders acknowledged the increased potential for future interest rate hikes.
However, it should be noted that not all investors believe this to be a true sign of hawkish mentality – there are some that suggest that the votes were intended to prop-up the Pound, rather than indicating a likelihood of policy change.
Sterling Gains against the Euro, European CPI Inflation Dips as Forecast
Sterling strengthened against the Euro yesterday by roughly a cent, hitting its highest level since the fallout of last week’s election.
Gains made by the Pound were the result of the hawkish BoE votes, but prior to this the Pound actually drooped following some negative retail sales numbers. The Office for National Statistics (ONS) reported a significant drop in sales volumes for May, which brought the annualised index down to 0.9%; a four-year low. Traders interpreted this as a further indication that the decline in real wage growth was beginning to affect consumer spending patterns.
Big data this morning revealed that Eurozone CPI inflation is, as forecast, at 1.4% for May, down from the previous month’s 1.9%. This data illustrated that inflationary pressures are currently easing. The Euro saw little immediate change against most of the majors following the release, although this bearish inflation outlook could continue to drag on the Euro as it provides further impetus for the European Central Bank to be dovish.
US Receives Underwhelming Factory Data, the Pound Gains against US Dollar
‘Cable’ climbed slightly higher yesterday, with Sterling growing stronger on the back of the surprise Bank of England split.
Across the pond, US traders received some underwhelming factory data, with industrial production decelerating from 1.1% to 0.0%, this was in addition to manufacturing activity decreasing from 1.1% to -0.4%. Despite this, the US Dollar remained somewhat unperturbed as traders are banking on bets of additional interest rate hikes from the Federal Reserve remaining solid.
Decreasing Crude Oil Prices Weigh on the Canadian Dollar
Sterling jumped against the Canadian Dollar yesterday following combined news that the Bank of England had voted 5-3 to leaving interest rates on hold while crude oil prices had fallen. It is likely that oil prices will continue sliding as high inventories and an abundance of supply continues to weigh on the commodity.
Sterling Gains against Australian Dollar, Australian Labour Market Figures Positive
Sterling ended on a good note against the Australian Dollar yesterday, thanks to the new seemingly hawkish outlook of the Bank of England. However, it did take some knocks following the release of upbeat Australian labour market figures: Unemployment in Australia slid from 5.7% down to 5.5% – a figure assisted by the significant 42,000 jump in job creation numbers. This report gave the ‘Aussie’ a boost, but it quickly lost these gains against Sterling.
New Zealand Dollar Dips Following Slowing GDP Growth
The Pound jumped against the New Zealand Dollar yesterday following the release of negative New Zealand GDP numbers. GBP/NZD was also bolstered by the surprising number of BoE rate hike votes.
The antipodean nation’s GDP was reported to have slowed to 2.5% versus the 2.7% that was expected, additionally, construction dropped -2.1% – the first time that sector has seen contraction since June 2015.
Today, however, the New Zealand Dollar has stabilised somewhat following the release of May’s manufacturing data. The Performance of Manufacturing Index printed at 58.5, up from April’s 56.9 and the highest point it’s been for 16 months. The Pound has struggled to keep up so far today– quickly losing some of yesterday’s gains.