2nd February 2017 Market Update
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?? GBP – Sterling rallied across the board against a basket of currencies yesterday, following Markit manufacturing data showing that factory output accelerated to a 32 month high, as solid domestic demand continued to drive production volumes higher. As well as this, Sterling was buoyed by speculation that the BoE may surprise with a more hawkish tone in today’s inflation report.
Also last night, MPs took a historic step towards taking Britain out of the EU by approving the bill allowing the Prime Minister to trigger Article 50 by a majority of 384 votes. However, this had minimal impact on the pound.
?? EUR – Eurozone manufacturing posted fastest growth in almost 6 years. New exports, boosted by a weak euro, grew at their fastest pace in 3 years, helping production levels to rise for the 43rd month in a row. The data caused the euro to rise to its strongest level against the US dollar, for almost two months.
?? USD – There was also strong data from the US which saw the latest ADP employment report smash expectations with an increase of 246,000 workers in January. On top of this the US’s manufacturing sector grew at its fastest pace in 2 years.
Later in the evening, the Fed unsurprisingly held interest rates at 0.75%. As well as this, there was no change in monetary policy but the Fed did mention they expect economic growth to continue. The news failed to spur on US dollar demand with the US dollar continuing its weakness.
9.30am: UK Construction expected to slow to 53.8.
12.00pm: Bank of England Interest Rate and Monetary Policy Decision and Quarterly Inflation Report.
12.30pm: BoE Governor Mark Carney Speech.
12.15pm: Mario Draghi Speech.
1.30pm: Initial Jobless Claims expected to drop to 250,000.
Our View: All eyes on the Bank of England at lunchtime today. Recent economic data seems to suggest that the economy has shrugged off Brexit doubts, which could give the BoE reason to raise inflation and growth forecasts and possibly suggest tapering off of the current QE program (currently at £435bn). Given the move in Sterling yesterday, this hawkish tone could well be already priced in and thus anything less than what is currently expected, could cause the pound to crash back down.
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