UK interest rates kept on hold as Euro slumps on German factory orders

Enrique Díaz-Álvarez09/Jan/2015Currency Updates

GBP

Cable touched a seventeen month low on Thursday morning on speculation the Bank of England would not raise its interest rate this year. The currency recovered as the day progressed, however, to finish 0.1% up.

UK interest rates were held at a record low of 0.5% again by the Bank of England in the first Monetary Policy meeting of the year. Low levels of inflation, concerns over domestic recovery and weakness in the Eurozone remain stumbling blocks to a rate hike, although a 25 basis points hike is still widely expected to take place at some point in 2015. The central bank also decided to keep the size of its bond-buying stimulus programme unchanged at £375 billion. The outcome of the vote will be published along with the meeting minutes on 21st January. Earlier, Halifax announced that house price growth had fallen to 7.8% YoY in December, well down on the 10.2% peak reached in July, citing poor growth in real wages for the slowdown.

More releases from National Statistics out in the UK today including Industrial and Manufacturing Production data at 9.30am, followed by the NIESR GDP estimate at 2pm.

EUR

Another day saw yet another record low for the Euro which slumped to a fresh nine year trough, ending the day 0.3% down against the US Dollar.

Retail sales in the Eurozone rose for a second consecutive month in November according to Eurostat. The annualised figure for November increased by 0.6% and was boosted by a 1.4% rise in sales of goods other than food and gasoline. However, consumer confidence fell in December to its lowest level since February of -12.0, down on the previous -11.5 reading. In Germany, factory orders fell sharply in November, unexpectedly down by 2.4% on a monthly basis and by 0.4% year on year. In a busy day of releases in the Eurozone, producer prices decreased more sharply than anticipated as a result of the sharp fall in oil, down 1.6% year on year. This was faster than the previous 1.3% decline and greater than the 1.4% that was forecast.

Germany takes centre stage again for the Eurozone with the release of trade balance and industrial production data before UK markets open at 7am London time.

USD

The greenback hit another cycle high against its major peers on Thursday afternoon before retreating to finish trading where it began.

The number of Americans that are filling for initial jobless benefits fell once again in the week ending 3rd January. The weekly figure declined to a seasonally adjusted 294,000, holding around a fourteen year low, with the more representative four week moving average down by 250 to 290,500. Continuing jobless claims did, however, climb by 101,000 to 2.5 million, although the four week moving average was down by 17,000 to 2.4 million. Such positive employment data highlights why the Federal Reserve remained upbeat about the state of the US economy in Wednesday’s FOMC statement.

A series of significant data releases in the US economy today. At 1.30pm (GMT) the US Department of Labor will be releasing both Nonfarm Payrolls and the official Unemployment rate for December.

Rest of the world

Sri Lanka’s Rupee plunged to a sixteen month low in the lead up to one of the tightest presidential elections in the country for decades and one which became too close to call. The Ugandan Shilling also suffered on Thursday, as the Ugandan central bank said it would take measures in order to halt the currency’s recent slide. The Shilling has retreated by 2.9% already in 2015 having fallen by 1.0% on Thursday.

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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.