Forex Afternoon Wrap – 06/08

BoE leaves rates unchanged with only one dissenter.

Key Notes:

• Australia employment change 38.5k vs. 10k; unemployment rate 6.3% vs. 6.1%
• Japan leading index 107.2 vs. 106.8
• Germany factory orders m/m 2% vs. 0.1%; y/y 7.2% vs. 4.9%
• UK Halifax house prices 3m/y 7.9% vs. 8.3%; m/m -0.6% vs. 0.3%
• UK manufacturing production m/m 0.2% vs. 0.1%; y/y 0.5% vs. 0.4%
• UK industrial production m/m -0.4% vs. 0.1%; y/y 1.5% vs. 2.2%
• BoE leaves rates unchanged
• Minutes reveal only one MPC dissenter
• US initial jobless claims 270k vs. 272k

Later

• NIESR GDP estimates

Australia jobs report was a mixed bag as the economy added 38k jobs, but the unemployment rate rose to 6.3%, from 6.1% previously. The Aussie was initially under pressure as the currency fell across the board, only to stabilize into the European trading session. AUDUSD remained subdued with the currency testing daily lows near 0.732. The Kiwi was however a bit stronger as the currency rallied gaining over 0.2% for the day testing the highs of 0.655 before easing back lower.

The Japanese Yen was trading flat today ahead of tomorrow’s NFP release. USDJPY was unchanged for the day after posting strong gains yesterday which saw USDJPY test the highs near 125 before closing the day lower at 124.84.

The European trading session saw the release of German factor orders which rose strongly by 2% for the month, while posting strong yearly gains of 7.2%. The Euro was trading mixed ahead of the US trading session open and is likely to continue the range trading into tomorrow’s NFP release.

The much anticipated ‘Super Thursday’ for the UK turned out to be disappointing. Manufacturing production grew at a pace of 0.2%, above the estimates of 0.1% while industrial production continued to be a drag, falling -0.4% for the month. The Pound Sterling was muted to the event ahead of the important BoE monetary policy and the quarterly inflation report.

While the Bank of England left rates unchanged, the MPC vote count was of more interest to the markets. However, investors were disappointed to note that there was only one dissenter, Ian McCafferty who wanted to see a 25bps rate hike, while the remaining 8 MPC votes were comfortable with the rates at the current levels. The BoE inflation report showed that the Bank expected inflation to be back to the 2% target in the next two years, in line with the Bank’s previous forecasts last quarter in May. In terms of forecasts, the Bank of England expects to see UK’s GDP grow from 2.5% to 2.8%.

The disappointing BoE event today saw a sharp selloff in the Pound Sterling as the Cable fell sharply losing over -0.5% for the day to trade near the lows of 1.5475.

The US trading session saw the release of the weekly unemployment claims which grew to 270k, below the estimates of 273k. The Greenback was muted to the news release. The US economic calendar is light today and the markets are most likely to settle into a sideways price action ahead of the first of the two important NFP releases due tomorrow.