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The pound was under the spotlight during today’s morning London session, thanks to the BOE’s  surprise vote. However, the pound was initially on the hot seat, due to the U.K.’s disappointing retail sales report.

  • SNB Libor rate: unchanged at -0.75% as expected
  • SNB sight deposits rate: unchanged at -0.75% as expected
  • U.K. retail sales m/m: -1.2% vs. -0.9% expected, 2.5% previous
  • U.K. retail sales y/y: 0.9% vs. 1.6% expected, 4.0% previous
  • Euro Zone trade balance: €19.6B vs. €22.4B expected, €22.2B previous
  • BOE: 5-3 vote to keep the Bank Rate at 0.25% vs. 7-1 vote expected
  • Kristin Forbes voted for a rate hike again
  • Ian McCafferty and Michael Saunders also vote for a hike
  • BOE: 8-0 vote to maintain stock of government bonds purchased at £435B
  • BOE: 8-0 vote to maintain stock of corporate bonds purchased at £10B

Major Events/Reports

SNB maintains current monetary policy

As widely expected (and as usual), the Swiss National Bank (SNB) announced that it will be maintaining its current monetary policy. The target range for the Libor rate is therefore still between -1.25% and -0.25%, with the median target rate at -0.75%. Meanwhile, the interest rate on sight deposits was maintained at -0.75%.

Also as usual (and widely expected), the SNB reiterated its mantra that the Swiss franc is “still significantly overvalued.

The SNB also repeated its usual threat that it “will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration.”

As for the SNB’s economic outlook, “the SNB continues to expect growth of roughly 1.5%” for 2017, which is unchanged from its forecast in March.

With regard to inflation, meanwhile, the SNB maintained its forecast that inflation will rise by 0.3% in 2017. However, the SNB also slightly downgraded its inflation projections for 2018 and 2019 from 0.4% and 1.1% to 0.3% and 1.0% respectively.

In his prepared speech for the presser, SNB Chieftain Thomas Jordan said that “available economic indicators suggest that the Swiss economy is on the road to recovery.” However, Jordan was quick to add that “certain indicators suggest that the recovery has not yet taken hold in all areas of the economy.”

And Jordan blamed this on “a combination of economic and structural factors.” Moreover, “the strong Swiss franc continues to weigh on some industries,” Jordan said.

Aside from the recovery not yet taking hold in all areas of the economy, Jordan also said that “Inflation remains very low and capacity utilisation continues to be unsatisfactory.”

As such, the SNB’s “expansionary monetary policy remains necessary in order to ensure price stability, while taking due account of economic developments.”

And when Jordan was asked during the Q&A portion if the SNB has any plans to trim its balance sheet, Jordan just said the following:

“That is not an issue. Our monetary policy remains expansionary for the reasons we’ve given, namely low inflation, underutilisation of production capacities and a significantly overvalued franc.”

U.K. retail sales miss expectations

According to the U.K.’s most recent retail sales report, retail sales volume dropped by 1.2% month-on-month between April and May.

This is a bigger contraction than the -0.9% consensus. Moreover, the decline in retail sales was broad-based, with only petrol stations reporting an increase in sales.

Year-on-year, retail sales volume increased by 0.9%, which is much slower than the expected 1.6% increase, as well as the +4.0% reported during the previous month. In addition, the annual reading in May is the joint (with the January 2017) weakest reading since April 2013.

On an upbeat note, the strong reading in April means that retail sales is still on course to print a bigger contribution to Q2 GDP growth.

MPC rate decision and meeting minutes

The BOE’s MPC released the minutes for its monetary policy huddle earlier today and below are some of the more important and/or interesting points in, well, bullet points for easier reading:

  • The MPC voted to maintain the BOE’s current monetary policy
  • 5-3 vote to keep the Bank Rate at 0.25%
  • 7-1 vote expected
  • 8-0 vote to maintain stock of government bonds purchased at £435B
  • 8-0 vote to maintain stock of corporate bonds purchased at £10B
  • Three members (Kristin Forbes, Ian McCafferty and Michael Saunders) voted against the proposition, preferring to increase Bank Rate by 25 basis points.”
  • CPI inflation had risen further above target to 2.9%, which was higher than had been expected. Measures of core inflation had also been higher than expected. Coupled with the effect of the 2½% depreciation of the sterling ERI since the May Inflation Report, this meant the overshoot of inflation relative to the target might be somewhat greater than previously supposed.”
  • “Overall, the degree of spare capacity in the economy appeared limited but, at the same time, the inflation overshoot relative to the target could be more pronounced than previously thought. This lessened the trade-off that the MPC was required to balance and, all else equal, reduced the MPC’s tolerance of above-target inflation. The Committee discussed the appropriate response of monetary policy.
  • And because of this possibility of inflation overshoot, two more hawks joined Super Hawk Kristin Forbes.
  • Despite the presence of more hawks, however,  “All Committee members agreed that any increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.”
  • Also, BOE Super Hawk MPC Forbes’ term as an MPC member will end this month (that’s one less hawk).
  • The Governor expressed his appreciation to Kristin Forbes for her contribution as a member of the Committee.

Risk aversion makes a comeback Europe

After a few bouts of risk-taking, risk aversion finally made a comeback during today’s morning London session.

  • The pan-European FTSEurofirst 300 down by 0.73% to 1,511.18
  • Germany’s DAX was down by 1.18% to 12,655.00
  • The blue-chip Euro Stoxx 50 was down by 1.36% to 3,505.00

Even U.S. equity futures felt the heat.

  • S&P 500 futures were down by 0.66% to 2,419.25
  • Nasdaq futures were down by 1.10% to 5,669.50

Market analysts say that overall sentiment soured because the U.K.’s disappointing retail sales report and the continuing commodities rout were weighing down on retailers and resources stocks respectively.

Major Market Mover(s):


The pound got a beating early on when the U.K.’s retail sales report disappointed. However, the pound later regained some poise and even ended up as the best-performing currency of the session, thanks to the surprise BOE vote.

GBP/USD was up by 29 pips (+0.23%) to 1.2766 with 1.2690 as session low, GBP/JPY was up by 91 pips (+0.65%) to 140.56 with 130.19 as session low, GBP/AUD was up by 97 pips (+0.58%) to 1.5834 with 1.6684 as session low

Watch Out For:

  • 12:30 pm GMT: Canadian manufacturing sales (0.9% expected, 1.0% previous)
  • 12:30 pm GMT: U.S. initial jobless claims (241K expected, 245K previous) and import prices (0.1% expected, 0.5% previous)
  • 12:30 pm GMT: Empire State (5.2 expected, -1.0 previous) and Philadelphia Fed (25.5 expected, 38.8 previous) manufacturing indices
  • 1:15 pm GMT: U.S. capacity utilization rate (76.8% expected, 76.7% previous) and industrial production (0.2% expected, 1.0% previous)
  • 2:00 pm GMT: NAHB’s U.S. housing market index (steady at 70.0 expected)
  • 8:00 pm GMT: BOE Guv’nah Mark Carney has a speech