Much ado about nothing?
All eyes on the Bank of England, today as we, in common with the majority of the market, expect the first interest rise since the pandemic began in February last year. The announcement of any change in base rate is at 12.00 (GMT), with an increase of 0.15% the most likely outcome. The split of votes on any rise by the Monetary Policy Committee will be close and indicate how worried the members are over inflation and how likely a further tightening of policy is.
The Bank of England is also forecast to announce a downwardly revised outlook and an upwardly revised inflation forecast. Following the base rate decision, the Bank’s governor, Andrew Bailey, will hold a press conference to explain his thoughts and actions. Whatever the outcome, it promises to be a volatile day for sterling, and we will be here to help guide you through what could be choppy waters.
The euro came under renewed selling pressure yesterday after the European Central Bank President Christine Lagarde again stated that they are very unlikely to move rates next year as they see inflation remaining low. The derivative markets are now not expecting a rise in euro deposit rates till December 2022 at the earliest.
As we have previously said, it is unlikely that the single currency can rally significantly whilst the ECB is at odds with the other major central banks over the timing of interest rate rises. Today is quite a busy day for data releases, including services and composite Purchasing Managers Indexes, but they will be overshadowed by events in Threadneedle Street at lunchtime.
As expected, last night, the Federal Reserve announced that it was to start tapering its bond purchase programme and reiterated in a mildly more hawkish tone than they have used recently that they “expected inflation to be transitory”. The dollar hardly moved overnight, and today the market’s centre of attention will turn to the UK before returning to studying unemployment data in the US tomorrow.
The ADP private-sector employment figure beat expectations yesterday, which encouraged thoughts that Friday’s Nonfarm payroll number will show a healthy increase, but the link between the two is tenuous. Today we get another hint on Friday’s number in the shape of the weekly jobless total, but the dollar’s direction will be continued to be driven by the reaction to Jerome Powell’s moves last night and his counterpart, Andrew Bailey’s actions and rhetoric today.