The addition of 211,000 jobs likely paves the way for a rate hike later this month.
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It’s surprising the pound weakened so much after the decision because officials barely changed their outlook, said Adam Cole, Royal Bank of Canada’s head of global foreign-exchange strategy.
USA interest rate futures implied traders are pricing in about a 78 percent chance that US policymakers will raise rates for the first time in nine years next week, according to CME Group’s FedWatch programme. At its meeting ending on 9 December 2015, the MPC voted by a majority of 8-1 to maintain Bank Rate at 0.5%.
They also highlighted a levelling off in wage growth in Britain, something which is central to the Bank’s deliberations on when interest rates need to rise.
“I was expecting a little more hawkishness given the way the BOE seemed to think that markets had maybe over-interpreted the stance in November”, said Kallum Pickering, an economist at Berenberg in London, who changed his forecast on Wednesday for the next increase in bank rate to May from February.
After a strong bullish run the Euro (EUR) has softened on Thursday morning, with a lack of domestic data to prompt support, while the Pound (GBP) is experiencing volatility in advance of the day’s Bank of England (BoE) rate decision. Despite lower unemployment, nominal pay growth appears to have flattened off recently. That could mean holding interest rates lower for even longer.
The New Zealand dollar and Norwegian crown were big losers to the greenback as commodity prices tumbled again and traders reckoned central banks would embark on more policy stimulus to help their economies.
Also once the markets get more clarity surrounding interest rates, that and the combination of increased economic confidence “should propel more proactive behavior from management teams in the name of growing ROEs/earnings”, the note read. Ian McCafferty preferred to increase Bank Rate by 25 basis points, given his view that the path of domestic costs was more likely to lead to inflation exceeding the target in the medium term than was embodied in the Committee’s collective November projections. Another reason for the Bank to be cautious is Britain’s planned referendum on its membership of the European Union.
However, policy-makers have been wary of possible risks that may emerge from vulnerable economies after any Fed rate hike is implemented.
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“The positive news from recent activity indicators hints that the slowing in quarterly GDP growth seen in the third quarter – to 0.5% from 0.7% in the second quarter – might reverse in the final quarter of the year”.
