Sterling will continue to be a focus today ahead of the Bank of England’s big day tomorrow where for the first time they will announce interest rates and release the minutes of their decision at the same time. On top of this the BOE will also release its Inflation Report which includes its most up to date forecasts for growth and inflation. This wealth of data could overwhelm investors and we are likely to see some volatility following the release, where the market is expecting the first votes for a hike from at least a couple of MPC members since the hawks were last calling for the base rate to rise last year. What has been made clear by both the Federal Reserve’s Janet Yellen and the BOE’s Mark Carney is that rates are going to move upwards soon. For the BOE the challenge is to determine whether, at a time of very low inflation, wage growth is robust enough to warrant the commencement of rises later this year or early next year, especially at a time when recent data has been indicating the economy is coming off the boil. This week alone has seen unimpressive PMI surveys for the UK and this morning sees the important services PMI release which is expected to dip from 58.5 to 58.0. Anything lower than 58.0 could put sterling under pressure.
For the US the debate is not indifferent with the Fed’s voting member Lockhart overnight calling for the start of rate hikes in September, but the market is expecting later in the year and we have two important nonfarm payrolls releases ahead of then, the first being on Friday. Today sees the ADP payroll expected to come in at 215k so anything better could see the dollar add to its overnight gains following the comments from Lockhart.