The pound got a boost this week as the minutes from the last Bank of England Monetary Policy Committee cut a hawkish tone. They stated that the decision between holding and raising rates was “finely balanced” for two MPC members.
It is safe to assume that these two members are Ian McCafferty and Martin Weale who last year had voted for an interest rate hike before reverting to keeping them on hold as the UK economy cooled and inflation was driven lower by the collapse in the price of oil. Depending on how the inflation data plays out over the coming months it seems likely we will soon see a 7-2 split in MPC votes, maybe as soon as June. Cable, which was trading at 1.4935 before the release, pushed up to 1.5040 immediately afterwards.
By Alex Edwards at UKForex, an international money transfer service
The dollar continued to weaken as the week went on, seeing GBP/USD push through 1.51 come Friday. Soft US data on Thursday contributed to the run on the greenback as unemployment claims, flash manufacturing PMI and new homes sales all printed below market expectations. Meanwhile, some relatively positive news on Greece supported EUR/USD, which saw increased bids in cable; the headline yesterday read that Greece may be given a final reform extension window. In other news on Thursday – and counter to sterling’s move higher over the last 24 hours – UK retail sales data printed a lot weaker than market forecasts, showing that sales fell in March by 0.5% vs. expectations for a rise of 0.4%. Other data showed that the UK government failed to meet its borrowing forecasts as public sector net borrowing excluding public sector banks was £87.3 billion. Both sets of data were shrugged off completely.
There was plenty of headlines on Greece too as the country’s PM, Alexis Tsipras, met with German Chancellor Merkel to try to come up with an interim deal for another loan, in the hope that it will be signed off as eurozone finance ministers met in Riga on Friday. The rhetoric was all fairly upbeat and the weak European PMIs released that morning were largely ignored. It also seems that Greece has managed to find enough cash to fulfil its salary and pension commitments for the end of April. With no official statement due during the round of meetings, the euro may be susceptible to various press reports and headlines over the next couple of days. It might also mean we see some large moves in euro cross rates come early Monday morning.
This week we await the release of UK prelim GDP and manufacturing PMI. Some of the most high impact data and events are due from the U.S., namely the FOMC statement. It will be interesting to know the central bank’s stance on the most recent run of weak US data. Given the rhetoric of late it’s likely to be interpreted as an aberration, in which case the view will continue that the Fed are ready for lift-off this calendar year. We’ll get a firmer idea on Wednesday evening.
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