IFX Market Report
Thursday 2nd February 2017

Market Report

Today marks ‘Super Thursday’ at the Bank of England, as at 12:00 noon, the Monetary Policy Committee at the BoE announce their; Interest Rate Decision, Asset Purchase Facility and Inflation Report. The BoE Governor Mark Carney will shortly after at 12:30 give a speech to discuss the minutes of the January meeting, which will be watched closely for any insight into central bank forward guidance.

With both inflation and growth forecasts expected to pick up, Andrew Lilico, director at Europe Economics believes this may lead to a number of economic ‘experts’ looking foolish, following their ‘doomsday’ predictions last year; "I think that quite a lot of economists have some egg on their face about exactly the way things were going to go." He adds: "I don't think the bank was out of line with the majority of economists in terms of their interpretation of what the immediate aftermath of the Brexit vote might have been… "But I think that they got it wrong at the time, I also think that they were a bit quick off the mark and panicky with the August interest rate cut. But it was obviously a hard call."

Members of Parliament yesterday voted to formally begin the Brexit process, as 498 MPs voted to back the democratic vote, while 114 (including 47 Labour members) voted against. The UK will soon formally begin the ‘greatest economic divorce in history’ as Brussels and London begin to negotiate the £50bn settlement. Brexit plans will now be published in a government White Paper, which will face further debate before Theresa May can trigger Article 50.

The pound has rallied this morning as investors show confidence in sterling in advance of this afternoon’s BoE ‘super Thursday’. GBPUSD gained significant ground on Wednesday as sterling made advances on both major peers. The pair opened at 1.2542 and spiked almost instantly, the pair gained 1.10% by late-afternoon in London to trade at 1.2680. The cross has made further advances this morning and now trades 1.31% above yesterday’s open at 1.2706.

GBPEUR opened at 1.1635 and immediately headed north, the pair rallied 1.19% in a matter of hours to hit 1.1774 and traded flat for the remainder of the session, the pair holds at 1.1750 this morning and awaits UK data this afternoon to dictate trade direction.

Worldwide News

The U.S. Federal Reserve Bank last night announced a ‘hold’ in their key interest rate of 0.75%. Janet Yellen and her counterparts at the FOMC have signaled for three separate rate hikes this year, after aiming for four in 2016 and only managing one, at the last possible moment, at their December meeting. Analysts at Citi Bank have commented; “perhaps the only new information was the lack of a hawkish signal that would increase the probability of a March rate hike or move forward the anticipated end of balance sheet reinvestments”… “Market pricing of a 35 per cent chance of rate hike by March, 50 per cent by May, 100 per cent by June and just over two hikes in 2017 moved to slightly lower probabilities following the statement,”.

The U.S. Dollar index is down 4.54% for the year, from the early January number of 103.82 to where it currently trades at 99.31. This is the worst (DXY) trading level since the 14th November 2016, just after the shock result of the U.S. election.

EURUSD traded bi-directionally on Wednesday as the pair absorbed positive U.S. data in the afternoon and sold-off amid the U.S. Federal Reserve meeting in the evening. The cross opened at session highs of 1.0807 yesterday and lost ground following the 13:15 release of ADP Employment change, that came in well above the 165k expectation at 246k, the pair fell 0.73% hit an intra-day low of 1.0729. Nevertheless at 19:00 when the Federal Reserve stole the attention, the Dollar lost ground, EURUSD spiked and the pair now trades 0.83% above yesterday’s low at 1.0818.

A heavy data calendar in the UK dominates today’s schedule, however at 12:15 ECB President Mario Draghi gives a speech, at 13:30 the U.S. release their initial jobless claims monitor (in advance of tomorrow’s U.S. Nonfarm Payroll report) and finally overnight at 23:50 the Bank of Japan announce Monetary Policy and release the associated minutes.