US data bolsters support for rates rise

Friday, August 07, 2015

Yesterday’s macroeconomic data releases offered further insight into US labour market conditions and saw support for a rates rise in the coming months gather pace. Initial weekly jobless claims hovered near four decade lows as claims for the week ending August 1st came in at 270K, two thousand less than analysts had expected as firing activity remained around historically low levels on an improving demand outlook. The dollar index held firmly around 97.80 yesterday as investors rebalanced portfolios and increased exposure to the greenback.

The rouble rout shows little signs of halting its slide against the dollar as the currency traded towards 64.50 against the dollar yesterday. Crude oil prices continue to trade under significant pressure owing to ample global supplies and an unimpressive demand outlook, which has seen the rouble lose 3.5% against the dollar this week alone. Activity early this morning extended those losses towards 5.8% as the commodity currency traded towards 65.3543 against the dollar. With crude oil fundamentals unlikely to tighten significantly in the coming weeks and months we expect the rouble to experience continued weakness over the short term.

UK investors were left slightly confused yesterday as the outlook presented by the Bank of England in their inflation report was more dovish than the majority of market participants had expected. Governor Mark Carney had been priming investors in the run up to yesterday, dubbed “Super Thursday” owing to the substantial data and economic forecasts being released on one day, dropping hints that an incoming rates rise could be expected very soon. Market participants had anticipated an increase to the Bank of England base rate as early as the beginning of next year, however, hopes were dashed as the Bank adopted a more cautious tone, downgrading its short term forecasts for inflation. Furthermore, economists had anticipated increased dissention in the ranks of the MPC with the expectation that three or possibly even four of the voting members would call for a rates rise. However, investors were again left disappointed as the votes were firmly in favour of maintaining rates at 0.5% at an 8-1 majority. Sterling traded under renewed pressure against the dollar, losing 0.5% throughout the day and closing just above 1.55 with activity this morning holding onto short term support around this level.

Initial weekly jobless claims hold near historic lows

INJCJC Index US Initial Jobless 2015 08 07 08 05 28

RUB extends losses against USD

RUB Curncy Russian Ruble SPOT 2015 08 07 08 20 36

GBP slips after dovish BoE outlook

GBP Curncy British Pound Spot 2015 08 07 08 33 03

Events for today

0700

DE

Jun

Trade Balance

0700

DE

Jun

Industrial Production

0930

UK

Jun

Trade Balance & Non EU

1330

US

Jul

NF Payrolls & Unemployment

2000

US

Jun

Consumer Credit

Topics: USD, BoE, GBP, RUB
More from: Kash Kamal