Bank of England board unanimously vote to keep interest rates on hold

Enrique Díaz-Álvarez22/Ιαν/2015Currency Updates


Sterling slumped by 0.4% against greenback on Wednesday morning after the Bank of England minutes were considerably more dovish than expected.

For the first time since July last year all nine members of the monetary policy committee voted to keep rates unchanged in January. The surprise announcement marked the first time in six months that the MPC’s two most hawkish members Ian McCafferty and Martin Weale had voted against hiking the benchmark rate. A significant fall in inflation, which last month declined to its lowest rate in more than fourteen years at 0.5%, was the driving force behind the surprising U-turn. While they insisted the plunge in inflation is temporary, increased dovishness from the committee shrouds doubt over whether a rate increase in 2015 will materialise as was previously expected.

However, while inflation remains a stumbling block to a rate hike, unemployment continues to improve, declining to just 5.8% in November; its strongest position since June 2008. The number of people in the UK out of work now stands at 1.91 million having fallen by 58,000 in the three months to November. More positive data released yesterday revealed average earnings exceeded inflation for the third consecutive month, rising by an annualised 1.8%, its greatest yearly increase since September 2012.

A couple of second-tier data releases in the morning today will be overshadowed by events in Europe that will largely determine Pound volatility.


Despite no data releases in the Eurozone, Wednesday was a turbulent day for the single currency in the lead up to today’s key ECB statement. The Euro soared in early afternoon after details of today’s announcement were released, before gradually falling back to finish trading 0.15% up versus the Dollar. Central bank officials suggested that policy makers will today propose purchasing 50 billion Euros in assets per month, at least until the end of the year. An ECB spokesman declined to comment, and while this is mostly in line with expectations, a great deal of uncertainty surrounding the announcement remains.

As is standard for the European Central Bank, the governing body will announce its interest rate decision first at 12:45pm today, before Mario Draghi releases the monetary policy statement at 1:30pm GMT, followed by a press conference. The momentousness of the occasion and the extreme bearish consensus on the currency all but guarantee an extremely volatile trading day.


The US Dollar index rallied yesterday afternoon after briefly touching a five day low to finish the day 0.2% up.

The number of building permits issued in the US unexpectedly fell in December according to the US Commerce Department. Permits declined by 1.9% to a seasonally adjusted 1.032 million units, down on November’s reading of 1.052 million. The report showed that housing starts, an indicator of new single family homes built in each month, rose by 4.4% last month; its highest reading since July last year. Elsewhere, mortgage application growth remained strong at 14.2%, largely due to mortgage rates dropping to their lowest level since May 2013.

Weekly jobless claims data out in early afternoon today, although as with its other major counterparts, Dollar volatility today will hinge closely on events in Europe.

Rest of the world

The Canadian Dollar plunged to its weakest position in almost six years after the Bank of Canada surprised markets by slashing its benchmark interest rate by 25 basis points to 0.75%. As has been commonplace recently, plunging oil prices have dragged down inflation and weighed heavily on economies of late.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.