Bank of England meeting results: QE +150 billion, dovish remarks and status quo at the rate

Trading 05 Nov 2020 Commentaire »

The results of the November meeting of the Bank of England supported the British currency, strengthening the bullish sentiment for the GBP/USD pair. And although the central bank increased the volume of the asset purchase program, investors were not upset - on the contrary, the pound perked up and settled within the 30th figure. Of course, the pair's growth momentum is primarily due to the weakening of the dollar, but nevertheless, the British central bank also provided support.

There are two main messages that were announced at today's central bank meeting. Firstly, the BoE intends to support the British economy (including by expanding QE), and secondly, not by reducing the rate to the negative area. At least this scenario is not yet considered in the context of practical implementation. This alignment was to the liking of investors, despite the dovish remarks expressed by BoE Governor Andrew Bailey at the final press conference.

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In particular, he said that the prospects for economic recovery remain "unusually uncertain." There are signs of weakening consumer spending, and the amount of idle capacity in the economy remains "very significant". Bailey also mentioned the second wave of coronavirus that swept the UK. He quite reasonably suggested that the tough quarantine, which was approved by the British Parliament just yesterday, would again hit inflation and the main indicators of the labor market. Let me remind you that the new semi-lockdown began to operate from today and will last at least until December 2. During this period, restaurants and pubs will have to shut down, as will gyms and shops that do not sell essential goods. Commenting on this decision of the British Parliament, Bailey noted that the COVID-19 epidemic will have "an indirect sustained impact on the economy." But here, too, he added that an additional 150 billion pounds under the QE program will help bring inflation back to target levels over the next two years.

Take note that the Committee members voted unanimously to increase the size of the QE program - as well as to keep the interest rate at the current level of 0.1%. In the pre-crisis times, such a result would have exerted significant pressure on the pound, but in the current environment, amid the coronavirus crisis, traders are content with maintaining the status quo on the rate and are optimistic about the unexpected news of the expansion of the stimulus program.

With regard to the negative rate, the BoE signalled that its work examining the effects on negative rates had not yet been completed, therefore it is inappropriate to talk about it on a practical plane. It is worth recalling here that they have been studying this issue for the third consecutive month - central bank economists interact with the country's financial institutions, simulating and analyzing the consequences of this step. Financial institutions must send their responses to the relevant requests by November 12. That is, by the December meeting, the results of this kind of poll will probably be known.

According to preliminary data, the dovish initiative of the central bank caused an extremely negative reaction not only from large banks, but also from depositors. And among the members of the Committee there is no consensus on this matter. In their public speeches, many of them (in particular, David Ramsden, Gertjan Vlieghe, Andy Haldane) opposed such an extraordinary and controversial step. And judging by the fact that the central bank refrained from substantive discussion of negative rates at the November meeting, this issue is unlikely to receive support from the Committee in the near future - at least this year. These conclusions made it possible for buyers of GBP/USD to strengthen their positions, especially against the backdrop of a weakening dollar.

The dollar is gradually falling in response to a sharp decline in anti-risk sentiment in the market. Joe Biden secured the support of 264 electors against the 270 needed. The vote count is still ongoing in Alaska, Arizona, Georgia, Nevada, North Carolina and Pennsylvania. The Democratic leader needs to maintain victory in those states where he is already in the lead and win in at least one of the key states (now the focus is Nevada). Trump's task is much more difficult - in addition to retaining victory in his states, he must conquer several key regions.

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But the market, by all appearances, has already drawn its conclusions by appointing the Democrat as the 46th US president, welcoming the approaching end of the phase of uncertainty regarding the outcome of the elections. In my opinion, such conclusions are fully justified, since the majority of the uncounted votes are mail votes. And according to numerous studies, supporters of the Democratic Party prefer to vote by mail. Therefore, we can assume that Biden is already one foot in the White House. In turn, Trump prepares and files lawsuits. However, according to many American political scientists, lawyers, as well as observers from the OSCE, these claims, as a rule, will not have a judicial perspective.

All this suggests that the GBP/USD pair retains the potential for further growth until the Brexit issue is back on the agenda. At the moment, the price is testing the resistance level 1.3070 (the upper border of the Kumo cloud on the daily chart). The first (and, so far, the main) target of the growth movement is the 1.3150 level - this is the upper line of the Bollinger Bands on the same timeframe.

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UK New Car Registrations Fall Further In October – SMMT

Trading 05 Nov 2020 Commentaire »

New car sales in the UK fell 1.6 percent in October to 140,945 units and marked a nine-year low for the month, the Society for of Motor Manufacturers and Traders, or SMMT, said Thursday. The Welsh 'firebreak' accounted for more than half of month's losses, ahead of new 'stay at home' order for England, forcing UK showrooms to close in November, the SMMT said.

The introduction of the 'firebreak' lockdown in Wales on October 23 contributed 25.5 percent fewer registrations by the end of the month which was more than half of the overall UK decline. The arrival of new models and ongoing financial incentives helped initially to sustain UK demand in the month, the industry body said. Citing the second lockdown in England, the SMMT downgraded its new car registrations forecast for this year to 1.56 million from 1.66 million. This equates to a year-on-year decline of around 750,000 registrations and a GBP 22.5 billion loss in turnover, with 2020 now likely to be the weakest year since 1982, the SMMT said. The industry is hopeful that the continuation of click & collect and delivery services will help to avoid a repeat of spring's wipe-out. However, car showrooms now face a double hit in the form of reduced winter trading and the challenge of Brexit. "What is not in doubt, however, is that the entire industry now faces an even tougher end to the year as businesses desperately try to manage resources, stock, production and cashflow in the penultimate month before the inevitable upheaval of Brexit," SMMT Chief Executive Mike Hawes said.

"Keeping showrooms open - some of the most Covid-secure retail environments around - would help cushion the blow but, more than ever, we need a tariff-free deal with the EU to provide some much-needed respite for an industry that is resilient but massively challenged."


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UK Extends Furlough Scheme Until End Of March 2021

Trading 05 Nov 2020 Commentaire »

The UK Chancellor Rishi Sunak on Thursday announced a five-month extension of the furlough scheme and an increase in the self-employment grant. Sunak announced that the furlough scheme called the Coronavirus Job Retention Scheme (CJRS) will run until the end of March with employees receiving 80 percent of their current salary for hours not worked.

Initially, the furlough scheme was extended until December 2.

The Self-Employment Income Support Scheme was increased and the third grant covering November to January calculated at 80 percent of average trading profits, up to a maximum of GBP 7,500.

"It's clear the economic effects are much longer lasting for businesses than the duration of any restrictions, which is why we have decided to go further with our support," Sunak said in a statement.

"Extending furlough and increasing our support for the self-employed will protect millions of jobs and give people and businesses the certainty they need over what will be a difficult winter."

The chancellor also increased the upfront guarantee of funding for the devolved administrations from GBP 14 billion to GBP 16 billion. This will cover workers, business and individuals in Scotland, Wales and Northern Ireland.


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Swedish Economy Recovers In Q3

Trading 05 Nov 2020 Commentaire »

Sweden's economy expanded in the third quarter, after a sharp contraction in the previous three months, preliminary figures from Statistics Sweden showed on Thursday. Gross domestic product grew 4.3 percent from the previous quarter, when the output plummeted 8.6 percent, which was revised from 8.3 percent, as economic activity was hurt severely by the coronavirus pandemic. On a year-on-year basis, GDP decreased 3.5 percent in the third quarter after an 8.2 percent fall in the previous three months.

The upturn in the third quarter compared with the previous quarter largely came from rising exports of goods, the statistical office said. "This upswing means that the Swedish economy has recovered roughly half of the sharp contraction in the second quarter," Statistics Sweden said.


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U.S. Jobless Claims Edge Down Less Than Expected To 751,000

Trading 05 Nov 2020 Commentaire »

First-claims for U.S. unemployment benefits showed a modest decrease in the week ended October 31st, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims edged down to 751,000, a decrease of 7,000 from the previous week's revised level of 758,000.

Economists had expected jobless claims to drop to 732,000 from the 758,000 originally reported for the previous week.

The Labor Department said the less volatile four-week moving average also dipped to 787,000, a decrease of 4,000 from the previous week's revised average of 791,000.

Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, tumbled by 538,000 to 7.285 million in the week ended October 24th.

The four-week moving average of continuing claims fell to 8,244,500, a decrease of 827,250 from the previous week's revised average of 9,071,750.

On Friday, the Labor Department is scheduled to release its more closely watched report on employment in the month of October.

Employment is expected to increase by about 600,000 jobs in October after climbing by 661,000 jobs in September. The unemployment rate is expected to edge down to 7.7 percent from 7.9 percent.


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*U.S. Initial Jobless Claims Edge Down To 751,000 In Week Ended 10/31

Trading 05 Nov 2020 Commentaire »

U.S. Initial Jobless Claims Edge Down To 751,000 In Week Ended 10/31


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Dollar Little Changed After U.S. Jobless Claims

Trading 05 Nov 2020 Commentaire »

The U.S. weekly jobless claims for the week ended October 31 have been published at 8:30 am ET Thursday. After the data, the greenback changed little against its major counterparts.

The greenback was trading at 103.80 against the yen, 0.9054 against the franc, 1.1838 against the euro and 1.3081 against the pound around 8:33 am ET.


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*Czech Central Bank Holds Key 2-week Repo Rate At 0.25% As Expected

Trading 05 Nov 2020 Commentaire »

Czech Central Bank Holds Key 2-week Repo Rate At 0.25% As Expected


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*U.S. Labor Productivity Jumps 4.9% In Q3, Unit Labor Costs Plunge 8.9%

Trading 05 Nov 2020 Commentaire »

U.S. Labor Productivity Jumps 4.9% In Q3, Unit Labor Costs Plunge 8.9%


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*U.S. Initial Jobless Claims Edge Down To 787,000 In Week Ended 10/31

Trading 05 Nov 2020 Commentaire »

U.S. Initial Jobless Claims Edge Down To 787,000 In Week Ended 10/31


The material has been provided by InstaForex Company - www.instaforex.com