Bank of England Leaves Rates on Hold

Daily Analysis - 17/03/2017

Central Bank Refrains From Action as Exit Negotiations Approach

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The Bank of England held its benchmark base rate at a record low of 0.25% amid signs that rising inflation and slower pay growth were curtailing consumer spending.  Furthermore, with the initiation of Brexit negotiations right around the corner, the economic reaction is difficult to forecast.

Pound Rallies on Internal Split


The Pound Sterling is back on the climb after the minutes from the latest Bank of England Monetary Policy Committee meeting showed the decision was split for the first time in eight months, with Kristin Forbes voting in favour of raising rates by 0.25%.

Forbes, who retires from the MPC in June, felt inflation “was rising quickly,” and would most likely remain above the Bank of England’s 2.00% threshold for at least the next three years.

Inflation reached its highest level in over two years in January at 1.80%, boosted by the Pound’s recent weakness and higher crude oil prices.

GBPUSD soared above 1.2360 before pulling back as the news of the split verdict gave traders hope that interest rates could be rising sooner than previously anticipated despite the looming risks of Brexit negotiations.

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Gold Digests Fed Rate Hike


Gold prices extended their move higher on Friday as investors continued to digest the impact of the US Federal Reserve’s rate hike.

Bullion soared while Treasury bond yields and the US Dollar fell in tandem after policymakers left hawks without any fodder to speculate on a steeper pace of tightening. With little in the way of fundamental announcements due throughout the session, the yellow metal may trend in consolidation mode until fresh cues emerge.

The election of liberal Mark Rutte as the Dutch Prime Minister has eased some of the political risk in Europe, which could put downward pressure on prices. Holdings of the world’s largest gold-backed ETF, SPDR Gold Trust, fell -0.28% to 837.10 tonnes on Thursday.

After climbing on Thursday, gold prices are currently flat on the session just above $1225 per troy ounce.

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New Zealand Manufacturing Activity Rebounds


Following the surprise dip in January when activity in the building sector waned, manufacturing activity in New Zealand managed to bounce back in February. The Business New Zealand’s Manufacturing Purchasing Managers’ Index (PMI) came in at a seasonally adjusted 55.2 last month, three points higher than January’s 52.2 print.

The latest reading marked the fastest pace of expansion since September 2016 as sentiment improves. The manufacturing sector has been expanding almost every month since October of 2012, largely on the back of a construction boom that started after the major earthquake in February 2011 that ravaged Christchurch and adjoining areas.

February's PMI data is particularly supportive in suggesting that the recent weakness in manufacturing that was on display in the just released fourth quarter GDP report was a short-term development.

NZDUSD is up in morning trade, with the pair hovering around the 0.6985-mark.

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Turkey Leaves Benchmark Rate Unchanged


In a widely-anticipated move, the Central Bank of Turkey left the key rate at 8.00% in its just ended Monetary Policy Committee meeting. The lending rate was also kept steady at 9.25%, compared to expectations of a 50 basis point hike.

However, in a move to curb the double-digit inflation and strengthen the country's currency ahead of next month’s constitutional referendum, the late liquidity window rate was increased by 75 basis points to 11.75%, matching the median economists’ estimate. Turkey’s consumer inflation rate last month jumped to 10.10%, more than double the Central Bank’s 5.00% target as a tumbling local currency raised pricing pressure for both consumers and producers.

The Lira rallied after the decision, and was last trading at 3.6105 per US dollar in early Friday trade.

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