Increased probability of a Bank of England rate cut

14th January 2020 Market Update

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?? GBP - Yesterday morning sterling declined against the majority of its major currency pairs following the increased probability of a Bank of England interest rate cut later this year. Money markets see an 85% probability of an interest rate cut, from 0.75% to 0.5%, following policymaker, Gertjan Vlieghe, hinting he will vote for a rate cut for the first time since 2016. He is the third Bank of England member to recently indicate he will vote for a rate cut and RBS are now forecasting rates will be slashed by the end of January.

The headline UK data release yesterday was the November monthly GDP figure which missed its forecasted 0%, released at -0.3%. This figure revealed the slowest UK economy growth in 7 years. Various other negative UK data releases included annual Manufacturing Production missing the forecasted -1.7%, released at -2%, monthly Manufacturing Production missing the forecasted -0.3%, released at -1.7%, annual Industrial Production missing the forecasted -1.4%, released at 1.6% and monthly Industrial Production missing the forecasted -0.1%, released at -1.2%.

?? EUR - This morning European Central Bank member Yves Merch is speaking, however, it is largely a quiet day for EU data today as it was yesterday.

?? USD -  The US Treasury decided to drop its tag of China as a currency manipulator yesterday. This lead to Chinese Yuan strength with USD/CNY dropping to its lowest level since the beginning of July. Steve Mnuchin, US Treasury Secretary, said “China has made enforceable commitments to refrain from competitive devaluation”. The US-China trade war appears to be coming to a close as both parties are due to sign phase one of their trade deal in Washington tomorrow.

The US Treasury have added the Swiss Franc to its “watch list” saying Switzerland need to adjust its macroeconomic policies.

Today US inflation data is released; the annual CPI figure for December is expected at 2.3%, after last month’s 2.1%, and the monthly CPI figure is expected at 0.3%, the same as last month’s reading.

Summary:

GBP: Money markets forecast an 85% probability of an interest rate cut
EUR: Merch speaking this morning
USD: US no longer list China as a currency manipulator

 

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