Next month’s BoE rate hike now off the table following weak growth data

The pound has just dipped following the release of first quarter UK growth (GDP) numbers.

They came in lower-than-expected, with growth estimated at only +0.1% from the previous quarter and +1.2% on the year (versus expected +0.3% and 1.4% respectively). The annual growth figure represents the lowest reading since Q2 2012 and it has significantly reduced the odds of a BoE rate hike for May. Money markets are now only pricing in a 32% chance of a hike compared to odds of over 50% ahead of this release.

A weaker figure was expected by many forecasters because of the poor weather we experienced over that period. However, the concern comes from comments made by the ONS who claim the shortfall had very little to do with weather-related symptoms. If the latter is indeed true, then this is surely a major concern for the BoE and something they can’t overlook. Are there some deeper underlying causes for this sluggish pace of growth? Time will tell.

As a result, the GBP/USD has fallen a cent today and now trades at a 7-week low. It’s now moved down over 5-cents in the past 10-days and close to testing some major support levels. The GBP/EUR has dipped around 0.75 cents but remains reasonably buoyant as traders switch from the Euro into the USD.

Pound drops further on Carney comments

The Pound has taken another knock overnight following comments from the Bank of England Governor, Mark Carney.

He stated that a rate hike is likely this year, but didn’t want to get too hung up on the precise timing of it. He further warned about the risks around Brexit and acknowledged the recent run of weaker UK economic data (e.g. inflation/retail sales) and highlighted that there was still some more key data to come before their next vote on 10th May.

The market have generally been expecting a rate hike next month, but Carney’s comments, and his overall dovish tone, have made this decision look more finely balanced now. As a result, traders have been selling the Pound back which has caused the GBP/EUR to drop around 1% to a 3-week low. The GBP/USD is down nearly 2-cents from yesterday’s high which represents a 2-week low.

Sterling traders will now be looking very closely at next Friday’s key first quarter UK growth figures. This is one of the last key bits of data before next month’s rate-setting vote and could shape the outcome. Brexit negotiations are also back under way this week, so we can also expect there to be more coverage in the news again (yawn!)

Have a lovely sunny weekend if we don’t speak! ?

Pound ends good run after inflation figures disappoint

Sterling has just dropped following weaker-than-expected inflation numbers.

Market expectations were for CPI to hit 2.7% but the figure came in lower at 2.5% – the slowest inflation number in a year.  This comes on top of yesterday’s lower-than-expected UK earnings figures and looks to have put an end to the strong run the Pound has had so far this month.

Although expectations are still for the BoE to hike rates next month, the odds have reduced following these figures. More importantly, it’s likely they’ll signal that they won’t be in a rush for future hikes, making the Pound less attractive. The BoE will present their latest growth and inflation forecasts (quarterly inflation report) straight after their next rate-setting meeting on May 10th.

As a result, the GBP/EUR and GBP/USD have both just lost over one cent and are back to last Thursday’s levels.

The good news for UK shoppers is that the period of negative real wages appears to be coming to an end, as now it seems pay levels are increasing mire than prices (inflation). Last month’s extremely poor UK retail sales figures, although mainly being put down to the snowy/cold weather, show how much of an impact this is having on consumers. Tomorrow morning we shall see whether there has been any improvement on this side with the release of last month’s retail sales numbers at 9.30am. Brexit trade negotiations are also starting this week, so watch out for any comments coming out of those.

Pound edges higher as risk appetite increases

Sterling has gained today as tensions over Syria have cooled slightly following comments from Trump and Russia, which has given market risk appetite a boost.

In his usual morning Tweets, President Trump said that he “never said when an attack on Syria would take place. Could be very soon or not soon at all!” Also the Kremlin have commented this morning that it is extremely important to avoid any steps that could threaten to raise tensions in Syria. Apparently, they have a “de-confliction” telephone line between US-Russia which is active and being used by both side.

Fears of a full-blown trade war between China and the US also cooled this week, with China not reacting as aggressively as expected to Trump’s latest trade tariff announcements. China made an offer to reduce the deficit earlier in the week, which wasn’t approved by the US, but it shows that there could be some middle ground and that it’s in neither parties interest to have a trade war.

The Pound has continued to be well supported by expectations of a BoE rate hike next month, further backed-up by BoE policymaker McCafferty’s hawkish comments on Tuesday, and after the Brexit transition deal was agreed last month.

As a result, the Pound has just hit a 9-month high against the Euro having edged up nearly 0.75cents this morning. The GBP/USD is up around 0.5-cent and trading towards the top of it’s recent range.

There aren’t any major data releases due this week, but next week’s calendar is looking a lot more busy.