Dovish BoE minutes push back rate hike talk

The Bank of England, yesterday released the minutes from their October meeting. There was no change in the 7-2 vote to keep interest rates unchanged. There was, however, a distinct change in tone, with fears that a further slowdown in Europe will weigh on UK growth. The headwinds from Europe, coupled with lower inflation in the UK, are pushing back the potential for a rate rise until well into next year, possibly beyond the UK general election. The pound fell sharply on the news, as the markets digested the dovish outlook for the UK with rates looking set to stay lower for longer. The USD was the strongest performer yesterday, after confirmation that CPI inflation data came in higher than expected, supporting the USD across the markets, especially against the euro. Growth fears are a pressing concern for Europe, and the markets will be closely monitoring today’s euro PMI data. This data is, once again, expected to come in weaker than forecast and put more downside pressure on EUR/USD.
 
We received some good news overnight in the form of Chinese HSBC/Markit PMI which came in better than expected at 50.4, over a predicted 50.2, this will help to calm fears over slowing global growth. The Canadian dollar was also volatile, following the shooting of a soldier at a Canadian war memorial. Canada’s stock index fell sharply on the news and we had wild swings in the CAD. This comes as the Loonie is already on the move following the mix of a soft retail sales report and the Bank of Canada removing the word “neutral” from their policy statement. 

Today’s UK retail sales are expected to fall to -0.1 per cent from a +0.4 per cent gain in August. If we do see a fall, this could lead to a further sell off in the pound, although the retail sales number is very hard to predict – so prepare for some volatility. Later we have US PMI data and the weekly jobless claims data, which will provide further clues on the US recovery and could be USD supportive if the data comes in at or above expectations.

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