It’s been a solid week of gains so far for the FTSE 100, with the index looking to post its highest weekly closing level since mid-June. The benchmark benefitted yesterday from the drop seen in the pound after the BoE adopted a cautious tone as far as the UK economic prospects going forward are concerned.
Calls for higher rates
The main event of the week for sterling saw some sizeable selling as the currency dropped following the latest monetary policy announcement from the Bank of England (BoE). The rate was unsurprisingly kept on hold with only two members, McCafferty and Saunders, voting for a hike. The stance of these hawks shouldn’t come as much of a surprise given their dissent at the prior meeting and the fact that they failed to gather more support leaves the chances of a rate hike any time soon as slim, and saw a swoon in sterling.
BoE cautious, but not uber dovish
The main reason for the depreciation in the pound following the announcement was the trimming of growth and wage forecasts by the bank. As has been the case for some time now, the most cautious comments revolved around Brexit but there was very little said on the matter that hasn’t been previously. The BoE now seems to be in a more reactive mood, waiting for further developments before altering the current policy. This marks a significant shift from the pro-active response announced 12 months ago in the wake of the Brexit vote which was subject, in hindsight, to a fair amount of criticism. Overall the tone adopted was fairly neutral in both the accompanying statement and the press conference that followed and longer term it appears unlikely that yesterday’s event revealed any real shift in policy stance amongst the BoE.
US jobs data comes into focus
Heading into the weekend the markets will likely be driven by the latest employment data from the US, with non-farm payrolls due out at 1:30pm BST. The monthly jobs number from the world’s largest economy can have far reaching implications for global risk sentiment but today the number is most important for the US dollar. The greenback has been in a state of steady decline since peaking in December, and despite three rate hikes since then a trade-weighted index of the currency is now sitting perilously close to its lowest level in two and a half years. The Trump administration once boasted that the rise in the buck shortly after their election victory was a sign of faith in America, and if we assume that the strength of the currency is in fact a barometer of perceived economic strength, then the subsequent depreciation is a clear warning sign that the faith may be wearing thin.