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The Bank of England’s (BoE) interest rate announcement on Thursday and the US Nonfarm Payrolls report due to be published on Friday will be in the spotlight for the rest of the week. As both financial events are related to two of the largest economies in the world, economists will scrutinise the accompanying data to be able to forecast the future course of action of the Federal Reserve and the BoE.
In the US, Fitch Ratings cut the country’s long-term foreign currency issuer default rating to AA+ from AAA. Its analysts said that “the repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.”
BoE Interest Rate Decision
Financial reporters call it a “Super Thursday.” One thing is for sure: most market analysts will tune in to listen to the BoE’s governing board decision on interest rates. A Reuters poll among economists showed that the majority expects the UK’s central bank to raise borrowing costs by 25 basis points. The report by Reuters writes: “Expectations for peak BoE rates reached 6.5% on July 11 after data showed record wage growth. But they fell back after a bigger-than-expected decline in consumer price inflation. Investors are now split fairly evenly between a peak of 5.75% or 6% late this year or early in 2024.”
Economists at Crédit Agricole suggested in a note to investors that the British pound could get a boost if the BoE appears more aggressive than expected. The note writes that “UK rate markets are currently forecasting a rate hike of more than 25 bps in the upcoming BoE meeting. This expectation means that many of the potential positives of such a rate increase may already be factored into the GBP’s current price. Given the current market expectations, for the GBP to witness a short-term boost, the MPC would need to deliver a policy decision or statement that is more hawkish than the market anticipates.”
US Nonfarm Payrolls July 2023
The week will close with the US Nonfarm Payrolls (NFP) July report which is published by the Bureau of Labour Statistics (BLS). The NFP data set reveals the strength of the labour market and the economy, and it is taken into consideration by the Fed and economists when reviewing the success of the implemented monetary policy.
Market analysts forecast the NFP figure to drop to 200,000, a bit less than the 209,000 reading in June. It should be noted that the forecast is significantly lower than the 12-month rolling average of 316,000. If the NFP figure comes in at 200,000 as forecast, it would mean that the economy cools down including inflationary pressures. If the figure is higher than anticipated, it could trigger a response by the Fed in its next meeting, meaning raising borrowing costs once again.
Eurozone Retail Sales In June
On Friday morning, Eurostat will release data regarding retail sales in the euro bloc for the month of June. Market analysts suggest that retail sales fell by 1.7% on annualised basis but rose by 0.2% on a month-to-month basis. The European Central Bank (ECB) has raised rates several times in the last few months trying to combat inflationary pressures. As a result, the cost of living has jumped with large groups of consumers struggling to make ends meet.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
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