04 August 2016 at 11:19 GMT
The long-awaited Bank of England rate cut has finally arrived, sending sterling down over 150 pips versus the US dollar in the initial plunge.
"The cut in the base rate was the minimum that the monetary policy committee could get away with, but the key is that there was no descent. In fact, the majority of the MPC look for the base to be near zero by year-end. Therefore, the next inflation forecasts will be as crucial
as the downward revisions in growth.
The increase in QE was shrouded in a split on the MPC, but it will now embrace corporate bonds.
Pope added that he would have favoured a more aggressive move, stating "I am frustrated that there was not a move to a zero Base Rate straight away."
Beyond the BoE, oil futures rebounded in Asia only to decline again in the European morning while Siemens' earnings saw shares jump on an improved outlook.
- US Initial Jobless Claims (1230 GMT)
- US Continuous Claims (1230 GMT)
- US Jun Factory Orders (1400 GMT)
- US Final Durable Goods Orders (1400 GMT)
The market is focusing on the BoE interest rate cut, which came in at the expected 25 basis points leading GBPUSD 150 pips lower in the first few minutes after the release.
EURUSD is weaker on mostly two factors: Bundesbank head Jens Weidmann’s comments yesterday on the adjustment potential of QE and also yesterday’s US releases, which were fairly in line. EURUSD is below the 55-day moving average (1.1154) which we looked at yesterday as support and closed a whisker below, which is not too convincing. We have decent tech support coming in at 1.1076 (200-day moving average).
AUDUSD despite weaker Retail Sales is higher with a risk on sentiment in the background. We have been fans of higher AUD on yield differentials and lack of guidance from RBA. AUD has not really been able to close day convincingly above 0.7600 and we need to start seeing something soon for follow-through.
FX Options volatilities
With the BoE out today the GBPUSD overnight straddle is trading 160-190 pips (covering both BoE and nonfarm payrolls). EURUSD overnight covering NFP straddle is trading 55-70 pips.
Otherwise, small interest in one-week NZDUSD covering RBNZ. JPY volatility is slowly marked lower but nothing big has been traded. We see some interest to buy two-to-four month still while two-week to one-month is offered.
Vols are mainly lower overall.
European shares were broadly higher as banks and oil companies rallied back from losses earlier in the week. Siemens in Germany traded 4.1% higher having raised its outlook for the second time this year, whilst insurance company Aviva in the UK also jumped 5.1% after reporting a gain in profit and raised dividend. Randgold Resources fell 9.5% after disruptions at two of its operating units led to lower profits announced before the open of trading today.
Later today traders will look towards US employment data and factory orders for signs of economic progress after last week’s disappointing growth report with indices still trading near all-time highs.
Earnings to be released Stateside today include Clorox Crocs, Dominion Resources, ICE, Leucadia National, Office Depot, and Time Warner.
The replay of our Morning Call can be found here.
Mid-session Europe is part of TradingFloor's stable of commentary running through from the US close, through Asia to the European session. Click below to keep abreast of all the developments as they happen.
Carney makes the cut, cable takes the (initial) crash. Photo: iStock
— Edited by Michael McKenna and Clemens Bomsdorf