Good morning. The British are once again dominating the foreign exchange news cycle, this time with their shocking decision not to hike rates or add stimulus in the first policy decision since the Brexit. Concluding their latest meetings today, it was announced this morning that the main interest rate for Britain would stay at 0.50% and “QE” purchases would remain at 375 billion pounds. The market was expecting a 25 basis point at least with some addition of stimulus so this news is quite a surprise. As a result, the pound has shot higher, dragging the euro with it, and setting up for another volatile North American session.
It was a very quiet Asian session as shares rose in anticipation of this morning’s Bank of England meeting. The Nikkei was higher for the fourth straight day, keeping the yen’s decline intact. Japan’s currency is now more than 5% above the recent post Brexit lows and risk appetite suggests markets eagerly await more central bank intervention. Despite this morning’s BoE decision, the bank did signal some action at next month’s meeting so any downturn for risk could be short-lived. The Australian dollar was higher on Thursday on better employment data, as 38.4k new full-time jobs were created last month down under, against expectations of only 8.4k. Participation also ticked up 1 basis point suggesting a stronger labor sector for the Aussies. The 18th EU-China Summit kicked off in Beijing so we can expect some comments on trade throughout today and tomorrow and over the weekend.
Looking back at Europe, it was a quiet session before Threadneedle Street’s excitement. Governor Carney, it seems, is trying to reinforce stability with the new government with today’s decision to keep policy as is. Only one member voted to hike rates which is also a surprise but according to the minutes, members did not want to look panicked given a lack of evidence as the Brexit fallout continues to unfold. The August meeting will again be “live” so it will be interesting to watch how markets digest this move. Elsewhere in Europe, it was very quiet on Thursday with little economic data on the docket. Over the last few minutes, the euro has ticked up about 0.5% keeping pace with Sterling. Eurozone inflation is released on Friday which could garner some attention ahead of next week’s ECB policy decision which is exactly one week away.
Turning toward North America, it is another quiet day on the US economic slate. At 830am today we will get weekly jobless claims and it is expected that 260k Americans filed first-time unemployment claims for the week ending July 8th. Following last week’s solid rebound in non-farm payrolls, markets are hopeful the labor sector continues to show stronger results on the layoffs side. Producer prices will also be released at 830am, Wall Street is forecasting a 1% bump which should largely go unnoticed without a significant miss. The big dollar has sort of taken a back seat this week, as the events of Europe and Asia guide foreign exchange markets. Tomorrow it was the Bank of Canada who had their latest policy statement, giving the Loonie a bounce amid a widely expected “no change” to their headline interest rate.
Chairman Poloz addressed markets yesterday morning, to articulate the committee’s statement to keep rates unchanged. While the central bank did offer concerns over medium-term growth, the Loonie spiked higher as Mr. Poloz and company still see a lot of room for recovery in 2016 and beyond. “The fundamentals remain in place for a pickup in growth” was one of the more outstanding quotes from yesterday’s statement, as Alberta wildfires and the Brexit referendum added noteworthy uncertainty for this year. The BoC is forecasting 1% economic contraction for Q2 and reduced their annual outlook from 1.7% to 1.3%. The Bank expects oil prices and the Loonie to trade more steadily for the remainder of this year, with oil projected to finish 2016 around $49 per barrel. The USDCAD rate continues to seesaw around psychologically important levels and similar to the Bank, the market seems content to remain in a holding pattern.
To receive our market analysis direct to your inbox daily subscribe here!
“Cambridge Global Payments” is a trade name, which in this document refers specifically to one or more of these legal entities: Cambridge Mercantile Corp., Cambridge Mercantile Corp. (U.S.A.), Cambridge Mercantile Corp. (Nevada), Cambridge Mercantile (Australia) Pty. Ltd.
Cambridge Global Payments (“Cambridge”) provides this document as general market information subject to: Cambridge’s copyright, and all contract terms in place, if any, between you and the Cambridge entity you have contracted with. This document is based on sources Cambridge considers reliable, but without independent verification. Cambridge makes no guarantee of its accuracy or completeness. Cambridge is not responsible for any errors in or related to the document, or for damages arising out of any person’s reliance upon this information. All charts or graphs are from publicly available sources or proprietary data. The information in this document is subject to sudden change without notice.
Cambridge may sell to you and/or buy from you foreign exchange instruments (including spot and/or derivative transactions; both kinds are here called “FXI”s) covered by Cambridge on a principal basis.
This document is NOT: 1) Advice of any kind, or 2) Approved or reviewed by any regulatory authority, or 3) An offer to sell or a solicitation of an offer to buy any FXIs, or to participate in any trading strategy.
Before acting on this document, you must consider the appropriateness of the information, based on your objectives, needs and finances. For advice, you must contact someone independent of Cambridge.
Certain FXIs mentioned in this document may be ineligible for sale in some locations, and/or unsuitable for you. Contact your Cambridge representative for further information regarding product availability/suitability before you enter into any FXI contract.
FXIs are volatile and may cause losses. Past performance of a FXI product cannot be relied on to determine future performance.
This document is intended only for persons in Canada, the US, and Australia. This document is not intended for persons in the UK or elsewhere in the EEA. In Australia, this publication has been distributed by Cambridge Mercantile (Australia) Pty. Ltd. (ABN 85 126 642 448, AFSL 351278); for the general information of its customers (as defined in the Corporations Act 2001). This entity makes no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law.
Fees may be earned by Cambridge (and its agents) in respect of any business transacted with Cambridge.
The document is intended to be distributed in its entirety. Unless governing law permits otherwise, you must contact the applicable Cambridge if you wish to use Cambridge services to enter a transaction involving any instrument mentioned in this document.
© Copyright 2018, Cambridge Mercantile Corp., ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Cambridge Mercantile Corp. See www.cambridgefx.com for contact details.