Sterling slumps on Super Thursday – 6th November 2015

Remember, remember the 5th November but not for Guy Fawkes but for the day informally known as “Super Thursday”. It was dubbed super Thursday because of the simultaneous release of the Bank of England’s policy decision, Monetary Policy Committee meeting minutes and Quarterly Inflation Report. Ahead of the three events, investors were predicting volatility in the currency markets and for Sterling and that is exactly what transpired.

The minutes from the November meeting showed another 8-1 to keep interest rates on hold at 0.5% (no surprises there) but it was the unexpected tone regarding inflation that did catch the markets by surprise. The MPC reduced its inflation forecasts for the rest of 2015, as well as in 2016 to 2017, and introduced a new, three-year inflation target that called for an overshoot in inflation of +2.2% y/y.

Growth forecasts were also mixed, with the 2015 and 2016 growth forecasts revised lower, and the 2017 nudged up, with a new, 2018 forecast (+2.5%) introduced. The biggest factor for Sterling however, was the reduction in market forward rates between August and November and the commentary that the eventual interest rate rise will be gradual. The Governor of the BoE went on to say that any interest rate rises are “an expectation, not a promise”. His comments meant his previous hawkish view was realigned itself with the more dovish market expectations. 

Sterling obviously suffered, dropping 2 cents on the day to the US Dollar and Euro, wiping out Sterling’s gains against the US Dollar and Euro that it had made over the previous few weeks. It also lost ground against the Aussie Dollar (3 cents), the Kiwi Dollar (1.5 cents) and the Canadian Dollar (2.5 cents). Needless to say, it was the worst performing major currency over the last 24 hours.

This morning there is UK manufacturing and industrial production which Sterling will be hoping provides some respite. Today’s focus though will be on the US and in particular the non-farm payroll number and the employment report at 13:30 GMT. The market’s will first look at non-farm payrolls and the result will ensure the usual volatility amongst the currency markets. Should the non-farms be below the predicted 184,000 net job increase  you can expect the US Dollar to slide.