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RationalFX: Pound heavily sold after the Bank of England’s interest rate decision

RationalFX: The pound fell against both the euro and dollar as the Bank of England decided to keep interest rates unchanged at 0.1%.

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RationalFX


GBP

Only two member’s of the MPC voted for a rate hike but the majority voted against a rate hike with the final vote 7-2 in favour of keeping interest rates unchanged. Governor Bailey in recent weeks has been vocal about increasing interest rates but he was a member who voted against a rate hike. A rate hike this year looks unlikely and this has seen the pound being heavily sold as a result.

Governor Bailey was quoted saying that the bank needed to see ‘hard evidence’ on the state of the jobs market before any hike and that an increase would not directly address supply chain issues that have been key causes of the acceleration in price rises. Bailey also went onto say the decision in regards to the rates was a ‘very close call’.

The Bank lowered its 2021 growth forecast to 6.7% from the 8.5% forecast in August. However, the 2022 GDP forecast is lifted from 2.3% to 2.9%, while 2023’s forecast is lowered to 1.1% from 1.3% previously. Also the inflation forecast has been updated for 2021 at 4.3% from a previous 4% and for 2022 forecast is lowered to 4.0% from 4.3%.

The bank stated that much of these forecasts are down to the current issues the UK is facing with supply chains. These issues have pushed up the average price level because of the limited availability of goods and services.

USD

The dollar was on course for a second straight week of gains against majors ahead of a key US jobs report that could change the timing of the Federal Reserve’s interest rate hike. The Fed has set a labour market recovery as a condition for rates increasing.

US Non-Farm Payrolls data which will be published on Friday is forecasted by economists to show a 450,000 surge in jobs in October, following a 194,000 rise in the prior month. The jobs data from the US should be strong given the recent consensus that shows recovery momentum is accelerating again.

Key announcements

13:30 – USD – Average hourly earnings m/m – Forecast at 0.4% from previous 0.6%

13:30 – USD – Non-farm employment change – Forecast at 455k from previous 194k

13:30 – USD – Unemployment rate – Forecast at 4.7% from previous 4.8%

Source : ETFWorld.co.uk

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