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BoE keeps rates on hold

With only 90 days to go until Brexit, the Conservative Party's majority in Parliament has dropped to just one, while Trump has pledged new tariffs.

Centtrip: Speaker Bercow delays vote on Brexit deal

Sterling dropped to a 30-month low against the Dollar due to persistent worries about a no-deal Brexit and a cut in the Bank of England’s GDP growth forecast from 1.5 per cent to 1.3 per cent yesterday, 1 August. The Monetary Policy Committee (MPC) agreed unanimously to keep interest rates on hold, in what was something of a non-event from the BoE.

The Pound briefly bounced back from the 30-month low, before sliding again and ending the day down 0.2 per cent lower at 1.2103. Sterling has recently plummeted on the increasing likelihood that Britain will exit the European Union without a deal, and has been down 2.3 per cent this week – its biggest weekly decline since October 2017.

In the US, President Donald Trump broke a truce in the Sino-US trade war last night after saying he would impose an additional 10 per cent tariff on $300 billion’s worth of Chinese imports on 1 September. US negotiators have just returned from trade talks in Shanghai, where, as some reports suggested, China failed to agree to buy large quantities of US agricultural products as promised.

Trump’s surprise announcement sent shockwaves through global financial markets and wiped out the Dollar’s recent rally against the Yen, which surged to a five-week high versus the former at 106.86 and a two-and-a-half-year peak against the Pound overnight at 129.35.

This latest development in the tit-for-tat between the world’s two largest economies threatens to bring further volatility in stocks and bond yields, and subsequently the greenback and commodity-based currencies that trade with China, such as Australia.

Fed fund futures are forecasting a further US interest rate cut in September at an increased 81.9 per cent as it is becoming more likely that the Fed will have to take more action to ease pressure on the domestic economy.

Today, the US will release the latest non-farm payroll data. It is expected that 164,000 new jobs were created in July – a sharp drop from the previous reading of 224,000. This tier-one data is usually scrutinised as a leading indicator of economic health. However, given the current picture outside of fundamental data, today’s release could become another non-event. The release is due out at 13:30 (GMT) along with the unemployment and average earning data. UK construction Purchasing Manger’s Index (PMI) will kick off the day at 09:30.

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