Pound Slides from 11-Month High

Daily Analysis - 04/08/2017

Bank of England Strikes Dovish Tone

The sterling slipped from an 11-month high against the U.S. dollar after the Bank of England voted to keep interest rates unchanged. Investor sentiment was also hurt after the central bank surprisingly slashed the country’s economic growth forecast.

Rate Hike Expectations Dampened

The Bank of England’s Monetary Policy Committee voted 6-2 in favor of holding rates steady at a record low of 0.25%. The central bank also cut its current year growth outlook to 1.70% from the 1.90% projected in May. The BoE left its asset-purchase programs unchanged and said its lending scheme would come to an end in February of 2018, as was previously scheduled. Speaking at a press conference following the meeting, Governor Mark Carney said business investment was likely to be negatively impacted by “Brexit”, which should suppress both productivity and wage growth. Money markets are showing that traders have now pushed back their expectations for a rate increase to November 2018. GBPUSD is staging a minor pullback early Friday to last trade around 1.31400.

U.S. Factory Orders Rise

Orders at U.S. factories rebounded in June to record their biggest increase in eight months, buoyed by a surge in aircraft demand, the Commerce Department said late Thursday. New orders for U.S.-made goods soared 3.00% to post their largest gain since October 2016, following two straight months of declines. The May data was revised higher to show orders dropping by 0.30% instead of the previously reported 0.80%. Economists surveyed by Reuters had forecast factory orders surging 2.90% in June. Excluding the transportation sector, orders fell 0.20%. Primary metals and machinery eked out gains, while demand for computers and electronic products contracted. U.S. manufacturing has been recovering from the 2015 slowdown caused by lower energy prices and a stronger dollar. USDCHF is stuck within a narrow range to currently hover around 0.96800.

Australia Retail Sales Top Expectations

Retail sales in Australia rose more than expected in June, bolstered by a recent improvement in the country’s jobs market. On a monthly basis, sales increased by 0.30%, the Australian Bureau of Statistics said early Friday, surpassing the 0.20% growth forecast by economists. During the second quarter, retail sales edged 1.50% higher. Consumer spending has been under scrutiny amidst concerns that record levels of household debt could stymie the economy. Separately, the Reserve Bank of Australia, in its quarterly Statement on Monetary Policy, said it expects economic growth to accelerate over the next two years, but wage growth is likely to remain tepid, indicating the central bank will keep interest rates on hold for some more time. AUDJPY is gaining in Friday morning trade to currently hover around 87.650.

Fitch Lifts Mexico Outlook

Ratings agency Fitch upgraded its outlook on Mexico's credit from negative to stable, citing decreased risks to economic growth and a stabilization of public debt. In a report released Thursday, Fitch said a "moderating" of U.S. stance ahead of NAFTA renegotiations had considerably eased concerns surrounding the competitiveness of Mexico’s exports. The ratings major further noted that the country was continuing on its path of fiscal consolidation, with public debt expected to decrease in 2017, especially given the strength in the peso. Fitch forecast the Mexican economy to grow at 2.00% in 2017 and 2.40% in the subsequent two years. Last month, Standard and Poor's had also revised Mexico's long-term credit rating from negative to stable. USDMXN was last seen around the 17.84400-mark.