Sterling remained largely governed by events elsewhere last week, as the BoE once again remained idle and refrained from altering any current policy, leaving the main interest rate and the asset purchase program on hold.
The BoE issued a very brief statement immediately following the policy meeting, and market participants are speculating that the unusually quiet responses from the central bank the last few months may mean they are switching up their forward guidance policy and possibly gearing up for a surprise rate hike this year. Immediately following the announcement sterling demonstrated a huge rally against the euro, rising to the highest level since 2012, after the European Central Bank expanded stimulus.
Looking forward to this week, expect Sterling’s movement to be dictated by the numerous unemployment data released on Wednesday, which is an important signal of overall economic health due to the fact that consumer spending is highly correlated with labour market conditions.
BoE governor Mark Carney is also scheduled to speak on Thursday, an event which will be heavily deciphered for interest rate clues.
The most important event of the week last week was the ECB policy decision, which was widely tipped to be the meeting whereby action would be taken in the form of extra monetary stimulus. Because of this the view was widely held that the single currency would fall dramatically over the course of the week. Surprisingly the Euro proved remarkably resilient.
Indeed, the ECB did take action, making an unprecedented move as it cut the bank deposit rate into negative territory, and dropped the main interest rate by 10 basis point to 0.15%. Although this immediately drove the euro down, this weakness turned out to be very brief and the Euro recovered by the end of the session.
The Euros remarkable resilience is actually reducing investor unease, and leading to risk appetite, with investors seeking higher yielding assets in the Eurozone. Analysts argue the market has taken the monetary accommodation as positive for the Eurozone, with Draghi’s commitment pledge to do whatever it takes to bring the Eurozone back to sustainable growth ringing true.
A very quiet week beckons this week, apart from Thursday, which heralds the release of the ECB monthly bulletin and Industrial Production m/m.
The US Dollar was mostly on the offensive last week, although the latest US jobs numbers hampered Dollar strength towards the end of the week. Although the non-farm payment release came in inline with estimates, many market participants feel that the Federal Reserve will now stay on course, and not speed up its efforts to taper or end monetary policy easing.
The figure of 217k jobs added to the economy and a fall in the overall unemployment rate to 6.3% although positive, means that we are unlikely to see an interest rate rise for some time, which should keep the greenback in check at least in the short term.
A relatively quiet week also beckons across the pond this week, although we do see the release of the Retails sales m/m – which is forecast to show a large increase against previous figures released last month, which means that any below expected figure will see the USD immediately on the back foot. This is followed on Friday by the PPI m/m and the Prelim UoM Consumer Sentiment.