Today will be a big day for the currencies market. This is because the ECB and BOE will deliver their interest rates decision. Shortly afterwards, the US will release the inflation and consumer confidence numbers. Therefore, we expect major moves in all the major currency pairs.
Bank of England will be the first to release its interest rates decision. It will release it at 11:00AM (GMT). Traders don’t expect the bank to change interest rates as they did in last month’s meeting. Since there will be no press conference after the decision, traders will focus on the minutes of the meeting. Specifically, they will want to look at the forward guidance on another rate hike this year. The bank could also decide against raising rates before the Brexit happens. They will also want to look at the number of votes for and against the rate hike.
The BOE’s meeting comes at a time when the sterling is rising against the major peers. It is rising because the two sides in the Brexit negotiations appear to be making progress and concessions. Last week, Germany and the UK made concessions and on Friday, the chief EU negotiator said he was ready to make accommodations to UK’s request.
The meeting also comes at a time when the UK has released positive economic data. Recently, the country released better-than-expected retail sales and consumer confidence numbers. The unemployment rate dropped to 4.0%, with the average weekly earnings rising by 2.6%. July’s inflation too rose by 2.50%, which was higher than the expected 2.40%. The same positive data was seen in the GDP numbers for the second quarter. The negative data was from the housing and manufacturing sector. The chart below shows the GBP/USD pair ahead of the monetary policy decision.
After the August meeting, the euro has traded slightly above the US dollar. It has also benefited from the progress in Brexit. However, there are concerns that the ECB will lower the growth projections for the region. This will be attributed to the lagging industrial production report, which showed that activity dropped in July. Recent data showed that the EU retail sales were lower than expected, with the EU CPI at 2.0%. Positive data has come from the recent business confidence numbers. The numbers show that the confidence among business leaders is increasing as the US and EU negotiate on a trade deal.
In today’s monetary policy statement and Draghi’s press conference, traders will be looking out for three things. First, they will want to know the growth projections from the committee. Second, they will want to know the exact meaning of ‘through summer’ which the ECB has talked about raising rates. Finally, they will want to know whether the ECB will extend QE past the December deadline.
The chart below shows the EUR/USD pair ahead of the ECB decision.