Markets Still Waiting On Signals From The Bank Of England And The ECB (Colm Gilhooly)

In what is likely to prove a quiet day for UK and European data, the main focus is likely to be on tomorrow’s Bank of England Minutes and UK GDP on Friday for the pound, with the Euro likely to be hugely dependent on the next move from the ECB in August.

Most UK data of late has been very good, and there has been growing calls for the BofE to raise interest rates sooner than the early 2015 that most people were anticipating at the beginning of this year.  However last month all 9 members voted to hold interest rates despite some seeming to suggest in public that rate rises should be considered, and this month the decision was once again to hold rates although we don’t know how each member voted yet.  Tomorrow will reveal this so if any member has voted for a hike then it potentially brings forward the prospect of a rate hike, however if the decision is a unanimous hold again sterling could slip due to the fact a rate hike could still be a way off.

UK GDP is expected to be good, and we are forecast to be the fastest growing of all the G7 countries.  I expect Friday to reinforce this so overall the picture for the pound is looking good with the only big swings caused by UK interest rate forecasts. Hence tomorrow being very important.

I expect the Euro to remain under pressure in the short term as investors are still very nervous about what the ECB may do going forwards as they have left the door open for more action if required.  EU inflation is still very low and recent European debt to GDP ratios are still very worrying, so unless things start picking up very quickly there could be a lot of pressure put on the single currency.  EU unemployment figures come out on the 31st so be prepared in advance of this.

The biggest data today will be US inflation so expect a lot of USD EUR variation and a knock on effect to the pound as well.  The US rate decision isn’t until next week but expect a low inflation figure today to pave the way for more dovish comments from the Fed.  If you need to make a euro transfer into any major currency and would like assistance getting the best rate, then feel free to email Colm at cmg@currencies.co.uk and I would be happy to explain how our service works.