Sterling slips on dovish noises from BoE. Market awaits Eurozone inflation figures

Claire Hogarth15/May/2014Currency Updates

GBP

London closed with sterling slipping across the board. Despite the record breaking employment and growth figures, the good vibes were restricted by a lack of clarity from the Bank of England concerning the likely timescale for a change in IR. Employment hit a record high not seen since records began in 1978; the overall jobless rate is now at a 5 year low. 283,000 people found work in Q1 of this year which nudges the overall unemployment rate from 6.9% to 6.8%. Wage inflation held steady, although the BoE expects this to rise around 2.5% by the end of the year.

The BoE continues to allude to giving a straight answer concerning the likely timescale for an IR change. Carney stressed an alteration in IR will hinge on the degree of unused potential in the economy. Responding to sharp falls in unemployment. the bank had no choice but to adjust its forecast for jobs. It now feels the jobless rate will fall to 6.3% by the end of the year and to 5.9% by 2016. Traders forecast a rate rise in Q1 of next year the BoE is making noises about Q2, only time will tell.

The sterling slump across the board came from this surprisingly dovish tone from the BoE, the market expected more aggressive noises from the BoE and MPC, but this was far from the reality. The Asian session has seen sterling little changed. Presently sterling is trading at 1 month lows against the dollar and has slipped from the 16 month highs seen against the euro.

No data out of the UK today.

EUR

Despite yesterday’s gains against sterling and the dollar, London opens with the euro slumping to 6 week lows against the greenback. It appears the street is poised for a poor inflation number today and focus remains on the potential IR cut in next month’s European Central Bank meeting. Poor industrial output yesterday increased investor’s unease towards the euro.

Today will be key for the euro and pivots across the board are expected. Eurozone inflation figures are set for release at 10am this morning. German and French GDP came in above expectations this morning but failed to lend support to the euro, the good news is clearly superseded by investors being jumpy over today’s inflation figures and next month’s ECB meeting. The euro has shown incredible resilience over the past year and has beaten all expectations, however the market is increasingly bearish on its long term prospects, with the noises from Draghi getting increasingly close to spelling out that an IR change is on the cards soon.

Aside from Eurozone inflation figures we also have GDP set for release at 10.00. Expect an eventful day for the euro.

USD

London closed with the dollar scuttling up against sterling and retracing slightly against the euro. This morning sees a reversal in EUR/USD fortunes with the dollar steaming up against the euro. Traders are clearly jumpy over euro positions with inflation figures and GDP set for release and increased volatility expected. Presently the dollar is trading at 6 week highs against the euro and monthly highs against sterling.

Unexpectedly high PPI yesterday led to increased dollar buying and mortgage applications came in line with market expectations. The Wall St bull run saw a slip yesterday. The Dow and S+P reversed from the record highs seen earlier in the week and for now at least the bulls are back in the pen.

Data of note today includes- CPI, continuing jobless claims, initial jobless claims and the Philly survey.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.