USD Shines on Trade War Escalation, Pound Lower After BoE Meeting

Market Reviews

The British pound grew initially after the meeting of the Bank of England, but then retreated on the statements of Mark Carney. Today, the Bank of England raised its key interest rate just for the second time in ten years. It was done against the backdrop of concerns about the possible acceleration of inflation, the withdrawal of the UK from the EU and trade disputes. Heads of the Bank of England unanimously decided to raise the key rate to 0.75% from 0.50%. Now the rate is at the highest level since 2009.

The Bank of England also raised its economic growth forecasts for 2018 and 2019. UK GDP will grow by 1.5% in 2018 and by 1.8% in 2019. Inflation will return to target 2% in 2020. Still, the BoE warned that Brexit could damage the economic recovery.

In the press conference, Carney said that tightening would be gradually as “structural factors that have pushed down the trend equilibrium real rate are likely to persist.” It will be limited because “domestic short-term factors (particularly headwinds from uncertainty and fiscal drag) will fade slowly.”

The euro remains under pressure after the announcement of the Fed decision on the rates on Wednesday. The EUR/USD pair fell today, despite strong data on the Eurozone producer prices. US dollar remains strong and benefits from heat up in trade war.

Eurozone producer prices rose by 3.6% annualized in June, which is higher than the 3% growth in May. It was also faster than the expected 3.5%. On a monthly basis, producer price inflation fell by half to 0.4% from 0.8%. Economists had predicted an increase of 0.3%.

European indices are all in red today amid escalation of US-China trade war. FTSE fell by 0.92%, DAX dropped by 1.55% and CAC was down -0.63%. Earlier today, China Shanghai SSE closed down -2.0% at 2768.02. Hong Kong HSI lost -2.21% and Nikkei dropped -1.03%. Singapore Strait Times also declined -1.28%.

Today’s data also showed, that UK PMI construction rose sharply to 55.8 in July, up from 53.1 and beat expectation of 52.8. Swiss PMI manufacturing rose 0.3 to 61.9 in July. Swiss retail sales rose 0.3% yoy in June. Swiss SECO consumer confidence dropped sharply to -7 in July.

US jobless claims increased by 1.000 to 218.000 in the week ended July 28, up from the previous week’s 217.000. Analysts had expected claims to rise to 220.000 last week.