London Session Forex Recap – Feb. 4, 2016

  • U.K. Halifax HPI m/m: 1.7% vs. 0.1% expected, 1.7% previous
  • Euro Zone retail PMI: 48.9 vs. 49.0 previous
  • MPC meeting minutes: 9-0 vote to hold main rate vs. 8-1 vote expected
  • MPC meeting minutes: 9-0 vote to hold asset purchases at £375B/month
  • BOE Carney: next move is still likely a rate hike
  • BOE Carney: “The whole MPC stands by that” (referring to next move)

All eyes were on the pound during today’s morning London forex session, thanks to the so-called BOE Super Thursday. The pound wasn’t the only mover, however, since the safe-havens and comdolls were also battling it out in the background.

Major Events:

Moderate appetite for risk during the session – There was some risk-taking during the forex session, with the pan-European FTSEurofirst up by 0.13% to 1,297.30 and the DAX up by 0.20% to 9,462.00. U.S. equity futures were also moderately in the green, with the S&P 500 futures up by 0.16% to 1,912.75 and the Nasdaq futures up by 0.20% to 4,181.75 during the forex session. Market analysts attributed the moderate risk-taking to the weakening U.S. dollar, which is causing commodities to continue their rally.

MPC rate decision and minutes – During his Jan. 19 his speech, BOE Guv’nah Mark Carney said that “now is not yet the time to raise interest rates,” but he stressed during his testimony before the Treasury Select Committee Hearing that his views were his own and that he did not necessarily represent the other MPC members. Well, today’s rate decision and MPC minutes revealed that the Guv’nah was speaking for all the MPC members after all. Even Ian “I want a rate hike” McCafferty finally changed his tune and rejoined the “keep rates on hold” camp, making today’s decision to maintain rates unanimous.

In addition, the BOE also cut its growth forecasts, saying that “Global growth has fallen back further over the past three months, as emerging economies have generally continued to slow and as the US economy has grown by less than expected. There have also been considerable falls in the prices of risky assets and another significant fall in oil prices.”

Regarding inflation, both the MPC minutes and Inflation Report noted that “The scale of recent commodity price falls means that CPI inflation is likely to remain below 1% until the end of the year.” But the BOE also forecasted that “CPI inflation is likely to exceed the 2% target slightly at the two-year point and then rise further above it.”

The BOE Guv’nah Speaks – The press conference with Guv’nah Mark Carney is still ongoing (watch it live here). And while he reiterated a lot of things that he already said in his Jan. 19 speech, his testimony before the Treasury Select Committee Hearing, and the MPC meeting minutes, there were also some juicy tidbits for forex traders to bite on. The most important of which is the BOE’s monetary policy bias of hiking rates rather than cutting rates, to which Carney replied: “Absolutely. The whole MPC stands by that.” Looks like the BOE is still looking to hike rates. It just so happens that conditions aren’t right.

Major Currency Movers:

GBP – The higher-yielding pound got some buyers at the start of the forex session, thanks to the prevailing risk-on sentiment and a significantly better-than-expected reading for the Halifax HPI.

Pound pairs then began feeling some pressure across the board about an hour before the BOE announced its rate decision and released its statement. When the BOE finally released its decision, pound pairs tumbled across the board, probably because forex traders saw Ian “I want a rate hike” McCafferty’s defection to the “keep rates on hold” camp as a very dovish sign.

However, the broad selloff was quickly stumped and pound pairs began erasing their losses when Mark “The Guv-nah” Carney said during the presser that MPC members are still more biased towards hiking rates.

GBP/USD was up by 30 pips (+0.21%) to 1.4598 with 1.4529 as session low, GBP/CAD was down by 66 pips (-0.33%) to 2.0002 with 1.9889 as session low, GBP/CHF was down by 77 pips (-0.53%) to 1.4583 with 1.4525 as session low

Safe-havens – The risk-on environment was rather toxic for the safe-haven currencies (USD, CHF, JPY), with the Greenback being the weakest of them all. This was likely due to European forex traders pricing-in Dovish Dudley’s testimony from yesterday.

USD/CHF was down by 83 pips (-0.83%) to 0.9978, USD/JPY was down by 53 pips (-0.45%) to 117.41, CHF/JPY was up by 44 pips (+0.38%) to 117.64

Comdolls – Rallying commodity prices and the prevalence of risk appetite during the trading session meant that the comdolls (CAD, AUD, NZD) were getting some much-needed lovin’ from forex traders.

AUD/USD was up by 45 pips (+0.65%) to 0.7211, AUD/JPY was up by 25 pips (+0.29%) to 84.75

USD/CAD was down by 93 pips (-0.67%) to 1.3681, CAD/JPY was up by 17 pips (+0.19%) to 85.78

NZD/USD was up by 60 pips (+0.91%) to 0.6718, NZD/CAD was up by 25 pips (+0.26%) to 0.9197

Watch Out For:

  • 1:30 pm GMT: U.S. initial jobless claims (279K expected, 278K previous)
  • 1:30 pm GMT: U.S. preliminary non-farm productivity (-1.5% expected, 2.2% previous)
  • 1:30 pm GMT: U.S. unit labor costs (3.9% expected, 1.8% previous)
  • 3:00 pm GMT: U.S. factory orders (-2.5% expected, -0.2% previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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