The Bank of England shocked the market on Thursday as they opted to hold on a hike of interest rates, keeping them at 0.1% for the time being. The move wrong-footed investors and saw sterling fall by over 1% against its major peers to hit new 1-month lows. The central bank had been rumoured to be considering a 15 basis point rise but seven of its nine policymakers voted against this. Despite inflation being forecast to hit almost 5% in April, the BoE want to see how many people lose their jobs after the recent end of the government’s furlough scheme before they make a decision on rates. Although the bank struck a dovish tone yesterday, Governor Baily said they would probably have to raise the rate from its all-time low of 0.1% “over coming months” if the economy performed as expected.
The dollar remained strong yesterday as it looks set for a second straight week of gains against its major peers. The dollar index, which measures the greenback against a basket of six rivals, once again reapproached its year-long highs around 94.50 after rallying 0.51% overnight. On Wednesday, Fed Chair Jerome Powell said he was in no rush to hike borrowing costs and set a labour market recovery as a condition for rates lift-off. As a result, today’s US non-farm payrolls will be closely eyed with economists expecting a 450,000 surge in jobs in October, following a 194,000 rise in the month prior.
The euro came within touching distance of year-long lows against the dollar yesterday as the European Central Bank’s dovish tone on Wednesday continued to haunt the shared currency. Speaking earlier today, ECB Vice President Luis de Guindos once again reiterated the central banks stance that factors behind the recent surge in inflation, such as the disruption in supply chains, are of transitory nature. This morning’s Industrial Production data released out of Germany showed an unexpected decline in September suggesting that the recovery in the manufacturing sector is dwindling. Looking ahead, European Retail Sales released today could offer some support to the euro.
10:00am EUR Retail Sales (YoY)(Sep)
12:30pm US Nonfarm Payrolls (Oct)
12:30pm US Unemployment Rate (Oct)