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August

UK interest rates up but Sterling slips

Published: Friday 03 August 2018

  • UK interest rates up but Sterling slips
  • Service sector and US jobs take centre stage
​​By David Johnson
I would guess you have heard by now that the Bank of England’s (BoE) base rate was lifted yesterday from the decade long 0.5% to 0.75%. BoE Governor, Mark Carney, suggested further gradual rises would be necessary, but he had a lot of very positive comments to share about the state of and the future of the UK economy; reinforcing the message that employment, inflation, wages and business growth have been delivering over the past year. Mind you, if you believed the news coverage of the event, people are likely to be selling their children and kidneys just to survive this mahoosive rate hike. The average mortgage will rise by circa £16 a month, by the way. Get a grip, BBC!
 
Pound recovers against Euro
 
So widespread was the expectation of the rate hike, that Sterling had already been bolstered ahead of the announcement. So it did a little dance at the top end of this week’s ranges and then eased lower for the rest of the day. The ‘gradual rate hikes’ comment, however, knocked the vim and vigour out of the Pound. Sterling has recovered against the Euro, though. It is just down against the USD.
 
Australian Dollar gets some help from Retail Sales growth
 
Overnight we heard that Australian Retail Sales were in line with last month’s 0.4% growth and that was better than the markets had forecast. The Australian Dollar gained a little on the news but not a lot.
 
Service sector in the spotlight for Eurozone and UK
 
On the European side of the day’s calendar, it is the service sector that takes centre stage. The Purchasing Managers Indices (PMI) for this most crucial of sectors are due from the Eurozone and the UK. The forecast for the Eurozone one is kind of meh, but the UK one is expected to have slipped a little. Mind you, market forecasts have been highly inaccurate of late, so let’s not get too bearish until we see the number. Both the Euro and the Pound are weaker against the US Dollar right now, so anything that gives them a lift will be interesting to watch.
 
Markets watching US employment data closely

And speaking of the USD, employment data will overshadow their Service Sector PMI today. With the Federal Reserve leaving its base rate on hold, they will be watching all of these indicators with a great deal of interest – and so will we. The US unemployment rate is marginally better than the UK’s at 3.9% and the markets expect the US to have created another 190,000 jobs, or thereabouts. Anything significantly different to that will have an impact on the US Dollar.
 
And that will take us galloping into the weekend. In the UK, the weather is set to be warm and sunny. I know that is par for the course for those of you who live in sunnier climes, but in the UK we need good weather… so we can complain about how hot it is. Let us have that at least.
 
Have a fab weekend and let's mull currency again on Monday.

School work
 
A junior school teacher is trying to assess what their children understand about people around them. She says to Gemma, “What do your parents do in their spare time?”
Gemma stands up and says, “My mum and dad play golf with their friends from the golf club, Miss.”
“That sounds lovely,” says the teacher. “Connor, what do your parents’ friends like to do?”
Connor stood up and said, “My mum and dad both play tennis, so they meet up with their friends at the country club.”
“That’s great,” says the teacher. “And Ella, what do your parents’ friends like to do?”
“Well, my dad hangs around with people who steal, burgle houses, kill people and get into fights.”
After a stunned silence, the teacher says “Er… well let’s… um… talk about something else now.”
Later that morning, the teacher is in the office and she calls Ella’s dad. She explains the context of the question, expresses her concern and asks for his opinion on what Ella said.
“Well, I am actually a defence lawyer,” he says, “but try explaining that to a seven-year-old.”
 
For more information, infographics and the latest currency insights, visit www.halofinancial.com/news