GBP/USD Sold-Off to No Rate Hike Votes, Mixed Labour Data

Talking Points:

• BOE interest rate vote 9-0 (against change); Asset-purchase vote 9-0 (against change)
• ILO Unemployment Rate (3M)(NOV) Actual 5.8% vs 5.9% Surveyed and 6.0% Prior
• Market will be focused on risk events including tomorrow’s ECB Quantitative Easing decision

UK’s November labour market data came out a mixed bag today, with the decision for no interest rate hike driving sentiment on the Pound to dip below 1.5084 against the US Dollar. The Bank of England was ‘unanimous’ in voting 9 – 0 against a rate hike, a possibility which now looks overly optimistic considering weak growth in the UK and Eurozone area, and major risk events taking place in the near term. UK ILO Unemployment Rate (3M)(NOV) beat forecast of 5.9% to be at 5.8%, as well as Average Weekly Earnings (3M/YoY)(NOV) matching the surveyed 1.7%. UK Employment Change (3M/3M)(NOV) however fell past expectations to be a meagre 37K, indicating employment figures to have increased only half of the 74K that was anticipated, and less than a third of the prior reading of 115K.

Upon the data release GBP/USD fell 60 pips, or 0.39%, as the market abandons prospects for any near term interest rate rise by the BOE that will provide support to the Sterling. There is little to alter the 6 month long down-trend for the pair, as risk sentiment in the Eurozone continues to weigh in, and deflation appearing to be a more material threat for the UK economy. With yesterday’s global growth rate forecast by the International Monetary Fund, downgraded from 3.8% to 3.5% for 2015, medium term economic outlook for the world remains bleak, and risk averse money flow is continuing to flow into safe haven assets including the US Dollar, Japanese Yen and Gold.

Looking ahead, all eyes will be on the European Central Bank tomorrow as pressure to tackle Eurozone’s deflationary spiral has driven up expectation of large scale Quantitative Easing from the bank. The slowdown of China’s economic growth, an engine that has been fuelling global demand, to a 24-year low will provide additional backing for an announcement of Eurozone Sovereign bond purchases programme to follow tomorrow’s ECB meeting. The size of the programme, as well as any restrictions on the type of Sovereign bonds to be purchased, will ultimately determine the trends that will remain prevalent in the coming weeks and months. According to the DailyFX Speculative Sentiment Index, the ratio of long to short positions in the GBP/USD currently stands at 1.50 as 60% of FXCM retail traders are long.

GBP/USD (5 Min Chart) - Created using Marketscope 2.0

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Written by George Meng, any comments, suggestions, or feedback please email [email protected]