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Bank of England Intends to Increase Rates in First Half of 2016

The Bank of England convened and decided to keep their monetary policy unchanged. The results of the voting showed an 8-1 against an immediate rise, with Ian McCafferty voting for a rise from 0.5% to 0.75%. The bank gave a hint that a rise to 0.75% will take place in the first half of next year, with it due to be upped to 1% by the end of 2016 and up to 1.5% by the end of 2017. UK GDP will increase by 2.8% in 2015, by 2.6% in 2016 and 2.5% in 2017.

On this news, the pound sunk to 1.5518 against the dollar, and to 0.7025 with the euro.

The governor of the Bank of England, Mark Carney, is due to give a speech which will be interesting from the point of view of assessing the current UK economic situation and the readiness for a hike in the base rate.

According to data published yesterday, the US trade deficit in June rose by 7.1% and, taking into account a correction for seasonal fluctuations, stood at 43.84 billion dollars. It is expected that the deficit will reach 43.5 billion dollars. June imports to the country rose by 1.2%, including imports of cars and food products. Exports were down by 0.1% due to a fall in global demand for goods manufactured in the US.

It’s worth mentioning that the monthly trade data from the US is quite volatile. The trade deficit in the first half of this year has increased 0.6% YOY. Exports fell by 2.9% YOY and imports were down 2.2% YOY for the first half of this year.

The US PMI in the service sector from the ISM showed a July rise to 60.3 against June’s 56.0 (forecasted: 56.1). Furthermore, the labor market data from the ISM indicated an increase from 52.7 from 59.6; something which nullified the ADP’s negative employment creation data in the private sector.

The movements on dollar pairs will increase on Friday when more labor market stats will be out. Weak results will provoke a fall in the dollar against other key currencies.

Labor market data from Australia was also released today. In it, July unemployment was reported to have grown to 6.3% from 6.1% in June. At the same time, the number of employed increased by 38,500 and thus exceeded the 10,200 expectation. Such inconsistencies and reassessments have become much more common of late, something that is a source of damage to trust in the reports. It can’t be that only the seasonal factor can explain such discrepancies on the labor market.

The Australian dollar reacted to the stats quite conservatively. The Aussie/Yankee is trading around 0.7329. The RBA will make a monetary policy announcement tomorrow, giving the market an idea of the bank’s thoughts on the current market situation.

German orders, taking inflation and seasonal fluctuations into account, were up MOM in June by 2.0% (forecasted: 0.2%). This order level is back to that of April 2008. The export volume orders increased 4.8% MOM, supported in part by a fall in the rate of the euro which has upped Eurozone competitiveness. Orders within the country were down 2.0% MOM.

June manufacturing production in the UK was down 0.4% MOM (forecasted: -0.1%). In Q2 a growth from 0.7% to 1% was recorded (as forecasted). According to preliminary data published last week, Q2 saw UK GDP increase by 0.7% after a 0.4% Q1 rise. Later on we’ll hear some July economic growth rate figures.

Today it’s worth looking at the US’ figures on initial unemployment benefit applications.

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