London Session Forex Recap – July 14, 2016

  • National Day holiday in France today
  • Swiss PPI m/m: 0.1% vs. 0.2% expected, 0.4% previous
  • Swiss PPI y/y: -1.0% as expected vs. 1.2% previous
  • MPC meeting minutes: 8-1 vote to hold main rate at 0.50% vs. expected 9-0 vote to cut
  • MPC meeting minutes: 9-0 vote to maintain asset purchases at £375B as expected
  • MPC meeting minutes: Most MPC members “expect monetary policy to be loosened in August

Price action was a bit choppy during today’s morning London session, but the pound spiked higher across the board near the end (while dragging the euro with it), thanks to the BOE’s decision not to cut rates… yet.

Major Events/Reports:

MPC rate decision and minutes – The BOE’s MPC released the minutes for its monetary policy huddle, and below are some of the more important points in bullet points for easier reading:

  • 8-1 vote to hold main rate at 0.50%
  • The one dissenter was Gertjan Vlieghe, and he wanted a 25 bps rate cut
  • 9-0 vote to maintain asset purchases at £375B
  • Most MPC members “expect monetary policy to be loosened in August
  • MPC members “discussed various easing options and combinations thereof,” but no details were provided
  • Details would be “determined during the August forecast and Inflation Report round
  • The pound’s fall has caused short-term inflation expectations to rise
  • The “improved resilience” of the U.K.’s financial system (among others) “have allowed the impact of the referendum result to be dampened rather than amplified
  • Brexit referendum has caused “sharp falls” in consumer and business confidence
  • There are signs that businesses are delaying investment and recruitment
  • Housing market activity is expected to weaken significantly
  • Given the above points, “economic activity is likely to weaken in the near term”
  • The MPC is committed to taking whatever action is needed to support growth and to return inflation to the target over an appropriate horizon

Another risk-on session – Risk-taking prevailed before and after the MPC’s decision to maintain its current monetary policy, the pan-European FTSEurofirst 300 up by 0.95% to 1,338.84, the blue-chip Euro Stoxx 50 up by 0.40% to 2,946.00, and the DAX up by 0.93% to 10,023.50. It did cause the U.K.’s FTSE 100 to slip, but it was able to hold on to its 0.05% gain to end to morning London session at 6,674.00.

U.S. equity futures were also getting a boost, with the S&P 500 futures index up by 0.58% to 2,158.50 and the Nasdaq futures index up by 0.54% to 4,585.88. The traditional safe-haven gold, meanwhile, got kicked 1.10% lower to $1,328.85 per troy ounce.

Market analysts said that the risk-on vibes were due to another broad-based commodities rally, which buoyed mining stocks. The the risk-on mood and commodities rally didn’t stoke demand for the comdolls, though.

Major Currency Movers:

GBP – Pound pairs were trading mostly sideways before the MPC revealed its rate decision, but began spiking higher when the BOE announced that it was maintaining its current monetary policy, likely because pound bears who were expecting a rate cut were pushing the eject button. The MPC meeting minutes did say that most MPC members “expect monetary policy to be loosened in August,” however, which is likely why sellers were, uh, selling into the rally.

GBP/USD was up by 165 pips (+1.25%) to 1.3373 with 1.3472 as session high, GBP/JPY was up by 210 pips (+1.51%) to 141.44 with 142.22 as session high, GBP/AUD was up by 188 pips (+1.09%) to 1.7503 with 1.7609 as session high

CHF – Based on how European equities were doing, it’s apparent that risk appetite was the dominant market sentiment. That didn’t faze demand for the safe-haven yen, however, since it was the only major mover during the session, and it easily trumped most of its forex rivals, excepting the pound.

USD/CHF was down by 56 pips (-0.57%) to 0.9777, CAD/CHF was down by 53 pips (-0.71%) to 0.7554, AUD/CHF was down by 31 pips (-0.42%) to 0.7469

EUR – The spike in pound pairs also gave euro pairs a boost, but the euro still got whipped by the pound and the Swissy. Third place is not too shabby, though.

EUR/USD was up by 45 pips (+0.41%) to 1.1150, EUR/JPY was up by 75 pips (+0.64%) to 117.90, EUR/NZD was up by 105 pips (+0.69%) to 1.5471

Watch Out For:

  • 12:30 pm GMT: U.S. initial jobless claims (265K expected, 254K previous)
  • 12:30 pm GMT: U.S. headline (0.3% expected, 0.4% previous) and core (0.1% expected, 0.3% previous) PPI readings
  • 12:30 pm GMT: Canadian HPI (0.2% expected, 0.3% previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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