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US Open Preview – Pound under pressure ahead of BoE rate decision
August 2, 2018 11:26 amVideo
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Here the latest developments in global markets:
Day ahead: Bank England rate announcement in the center stage with trade developments eyed
The Bank of England (BoE) will be deciding on monetary policy later today. Markets are expecting the Bank to raise benchmark rates by a quarter percentage point to 0.75% (1100 GMT) with the probability for such an action standing at around 91% according to UK OIS. Since a rate increase has been already mostly priced in, the focus will turn to the voting structure, with investors eagerly awaiting to see whether continuing Brexit and trade uncertainties, as well as some recent weakness in British wage growth, is pushing some policymakers to the dovish side in terms of the rate outlook.
In the previous meeting, six policymakers backed no change in interest rates, while the remaining three voted in favor of a rate rise. Expectations now are for a 7-2 rate hike vote and should this come surprisingly different, the pound could see some fluctuation. In other words, in case a larger number of MPC policymakers support that rates should remain steady, the pound is likely to move south and vice versa. Still, a “dovish” rate hike is not unlikely as the lack of clarity on the Brexit front and growing whispers of a no-Brexit deal not long before Britain’s exit from the EU bloc could turn policymakers cautious on future rate increases. Moreover, risks around the US trade policy which threatens the state of global trade could further complicate matters for policymakers. Commentary on Brexit and trade topics – especially the former – are expected by the BoE chief, Mark Carney, who will be holding a press conference at 1130 GMT. Investors will be also be carefully monitoring the Bank’s inflation forecast report delivered today alongside the rate announcement.
Meanwhile in the US, the economic calendar will feature initial jobless claims for the week ending July 28 at 1230 GMT and June’s factory goods orders at 1400 GMT. The numbers are expected to show that initial jobless claims have increased to 220,000 in the aforementioned period compared to 217,000 seen in the previously tracked week, while new orders by manufacturers are projected to grow by 0.7% m/m, above May’s 0.4%.
Updates on the US-China trade dispute, though, could be of greater importance to the dollar as tensions do not appear easing, with sources stating that the US president demands a 25% import tariff on $200 billion Chinese goods compared to the 10% previously proposed. The headlines weighed on Chinese equities and the yuan. In terms of China’s response, the country’s deputy director of the Foreign Ministry Information Department said in return that “unilateral threats and pressure from the US will only backfire”, adding that the door for dialogue is open from China’s side.
The NAFTA story will come under the spotlight too as Mexican negotiators will be in talks with their US counterparts amid optimism that both countries could reach an agreement on the auto-related part which has been dragging on talks so far.
Elsewhere, retail sales for the month of June will be closely watched in Australia at 0130 GMT on Friday, with forecasts supporting a stronger growth of 0.8% q/q in the second quarter, compared to the 0.2% rise seen previously. Month-on-month, however, the measure is said to come slightly weaker, inching down by 0.1 percentage points to 0.3%. A beat in the data could help the aussie, which is currently trading at 2-week lows versus the greenback. The Chinese Caixin services PMI delivered a few minutes later at 0145 GMT could be supportive as well if the numbers prove encouraging.
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