Sterling gets some support from the BOE

Bank of England

GBP/USD is currently trading at about 1.4392, GBP/EUR is trading at about 1.3240, so GBP/EUR and GBP/USD are not moving on Thursday, courtesy of the Bank of England and not moving low, which is the most important thing for Sterling at the moment, but the Bank of England meeting saw eight members of the Monetary Policy Committee voted to keep rates at 0.5%.

Ian McCafferty continuing to vote for a 25bps increase as he has been doing since the autumn. There was the belief that if they change given the falls in oil prices and the effect that it would have on inflation further on down the line and he believes that domestic generated inflation i.e. from wages is soon to come through and hopefully labor market data would show that over the course of the next coming months.

UK Inflation is very much like a summer holiday at the moment, everyone remembers what one feels like, but no one can quite remember the last time it really happen. Hence, moving forward through the rest of the quarter for Sterling, we’re getting continued pressures from the fiscal retrenchment from the UK government would continue. Obviously, fears around the UK referendum on European Union membership, would also keep a little bit of pressure on the sterling, but it’s the data picture that’s the most important here. Labor pressures, for example wage increases and continual falls in unemployment remain, then the prospect of a rate rise are not all well and done.

Elsewhere, in China things have been fairly quiet overnight, with the People’s Bank of China not moving the reference rate of the yuan too much over the course of this week, let alone over the course of last night, which is in stark contrast to what they did last week and hence the volatility that we saw last week. Once again, at Capital Street Research Desk we expect to see stimulus from the Chinese authorities into the Chinese New Year on February 8th.

The main movers overnight have been commodity currencies, with the Canadian dollar continuing to get hit as market continually price in an interest rate cut for the Bank of Canada at their meeting on the 20th. Data wise today, it’s going to be fairly quiet, with the US retail sale billed for 13:30 BST, it is always interesting to see what the U.S. consumer is doing. The market are expecting a 0.2% rise on the month.

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