The pound yo-yoed from midday yesterday after the Bank of England voted unanimously, as expected, to keep interest rates on hold. Sterling dipped initially but strengthened again afterwards as the Bank mentioned rates would rise should a divorce deal with the EU be struck. The nine-member monetary policy committee also scaled back the number of increases in borrowing costs needed to meet the government’s 2% inflation target to just a single 0.25% increase over the next two years. The central bank cut the UK growth forecast from 1.7% to 1.2% for 2019, as evidence suggested Brexit jitters were still spreading from companies to consumers. The BoE also said Britain faced its weakest economic growth in 10 years with the global slowdown dragging the UK with it.
GBPEUR fell towards 1.1350 as the votes were recorded before rebounding around 1 cent to 1.1451 following the mention of rate rises if a deal is done. Cable mirrored this move, dropping into the 1.28’s until the Governor’s remarks propelled the pair to just below 1.30. The comments were however only a short respite from the fear of Brexit deadlock, with the pound still facing considerable downside risks, with Theresa May yet to secure any concessions from Brussels.
Today’s key events
This morning, Industrial production figures from France and Italy were focused on, with the former outperforming its forecast while the latter missed expectations by a margin. German trade balance figures also posted, with a greater increase in exports recorded, widening the trade surplus to €19.4bn.
This afternoon, Canada will announce its employment change and update its unemployment rate. A small increase to the unemployment rate is expected and markets will watch closely to see if this is the case.