CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

GBP Surges On BoEs Upwardly Revised Growth Forecasts

Article By: ,  Senior Market Analyst
August 6, 2020 4:05 AM
As expected, the BoE kept monetary policy on hold with interest rates at the historically low levels of 0.1%. This meant that the quarterly inflation report and the tone of the central bank would drive movement in GBP.

Quarterly inflation report
The central bank presented an improved outlook in the quarterly inflation report for this year. GDP for 2020 was upwardly revised to -9.5% (-14% previously), with a smaller rebound in 2021 of +9% vs +15%. BoE considered that the recovery in the UK has been earlier and more rapid than initially expected. However, the bank also highlighted that risks to activity are skewed to the downside as the government unwinds job support.

Inflation is expected to be more subdued this year +0.25% vs 0.6% previously forecast and could turn negative temporarily, although the rebound next year is expected to be stronger. The central bank was clear that there will be no tightening of policy until a sustained move towards 2% inflation is seen. According to the BoE’s forecasts that won’t be within the next three years.

Negative rates
Much to the Pound’s delight not only were there no dissenters towards negative rates but the central bank also said that negative rates at this time could be a less effective tool to boost the economy
Conclusion
The BoE was considerably more upbeat about the recovery than had been expected. Upwardly revised growth forecasts, a more rapid recovery than initially feared and no tilting towards negative rates at this time has sent GBP surging towards $1.32. 

USD struggles
The same concerns that dogged the USD in July, resulting in its worst monthly performance in a decade, have unsurprisingly dragged into August. The greenback trades lower amid concerns that rising coronavirus cases will result in the US economic recovery lagging behind other countries. Whilst data has broadly been supportive, the picture surrounding the labour market is darkening rapidly. 

• The ADP payroll report showed that growth slowed sharply in July with 162k vs expectations of 1 million. 
• The ISM non-manufacturing PMI was upbeat with new orders hitting a record high. However, the employment sub component weakened considerably. 
• Initial jobless claims today are also expected to add to mounting evidence that the recovery in the US labour market has stalled. 

It will take a very impressive number from tomorrow’s non farm payroll to turn the USD around. Given the lead indicators this week, a strong NFP is looking highly unlikely.



StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024