Yesterday the Bank of England left its policy rate and bond-buying target unchanged, as members of the committee look for signs that their continuing stimulus efforts and push to boost bank lending can reignite growth in the UK’s stalling economy. UK expectations for inflation next year were unchanged in July, with the average expectation of the annual rate of inflation in 2013 was 2.4%, the same as in June.
In an interesting report, the National Institute for Economic and Social Research said George Osborne’s austerity measures have pitched the economy into recession and cost the country 200,000 jobs. I am not sure it cited what would have happened if the UK had lost its AAA credit rating status or if there had not been a European crisis in our doorstep.
Construction in the UK expanded in July, but the outlook ahead remains weak as new orders slid to the lowest level in two-and-a-half years. PMI rose to 50.9 in July from 48.2 in June.
The eagerly awaited event did not disappoint traders looking for volatility yesterday. In the lead up to the event risk taps were firmly flowing and the euro was preparing for a rally. For reasons mentioned below most major currencies reversed a weeks’ worth of movements with minutes.
GBPEUR dipped to a low of 1.2655 in anticipation of the ECB press conference reversing as high as 1.2779 before closing 1.2739. The current trend can be seen as sideways until either 1.2888 or 1.2579 is broken.
Cable reached a peak of 1.5676 before bottoming out at 1.5490 as market flocked back to safety. We have now failed a breach of significant support and resistance levels numerous times. As with GBPEUR we are in a neutral trend until a sustained break of either 1.5470 or 1.5740.
The ECB has joined the Fed in maintaining its current course with monetary policy – and in doing so has caught bullish speculators flat-footed. Hope for a short-term rally from stimulus has been deflated by the US central bank’s refusal of QE3 demands and ECB President Draghi’s inability to live up to built up rescue expectations. After so many similar promises can we really be surprised at disappointment?
Mario Draghi indicated that the central bank is ready to restart purchases of government bonds on the secondary market however he only offered only a glimpse of the new strategy, with the actual interventions weeks or months away and a host of obstacles standing in the way before Europe can claim to be on a path out of the crisis that emerged in Greece in late 2009.
The ECB left its main interest rate unchanged at a historic low of 0.75% however we do know that a possible interest rate was discussed at the meeting leaving the door open in the future.
EURUSD lost two cents almost immediately upon realisation that yesterday would not be the day for central bank intervention. Previously the rate has peaked at EURUSD 1.2377 and showed good signs of potential continuation. The reverse in fortune’s sees the current rate at 1.22 with some trades discussing 1.2054 as a key target.
The number of U.S. workers filing applications for jobless benefits rose last week, continuing an uneven pattern that suggested job creation faltered in July. Initial jobless claims, an indication of layoffs, increased by 8,000 to a seasonally adjusted 365,000 in the week ended July 28.
Completing a series of better than expected data, Australian retail sales rose 1.0% to a higher-than-expected seasonally adjusted A$21.58 billion.