The Bank of England’s Monetary Policy Committee voted unanimously to cut rates by one and a half percent in November, the BOE MPC Meeting Minutes revealed today.

The 9-stong committee also considered a larger 2.00% cut thanks to a deteriorating economic outlook and the prospect of falling inflation. The Bank’s Inflation Report revealed that inflation would likely fall to “well below” its 2.0% target in 2009 and the Committee would have been privy to this information prior to its release.

However, the prospect of a 2.00% cut was rejected in favour of a more measured approach to the easing of monetary policy. The MPC believes that consumer confidence will be supported if the bank eases rates gradually as and when more signs of economic weakness become apparent. The Bank also believed that drastic cuts could weaken the GBP to a level that might create upward inflationary pressure.

The decision to measure interest rate cuts was key as the MPC wanted the opportunity to explain its position in the November Inflation Report. It seems that the Bank is well aware of the importance of keeping the British consumer informed. If the UK economy is to recover, or at least minimise recession, consumer confidence and spending will be key.

Last Week
Last week was characterised by further weakness in Sterling as BOE Governor King confirmed that more rate cuts are coming “if that proves to be necessary”. The BOE Inflation Report also confirmed that inflation will fall to “well below” the Bank’s target 2.0% in two years time. At the present time the market is expecting the UK Official Bank Rate to hit 2.00% by mid 2009.

On the other hand, Yen and the US Dollar were firm against the major currencies as economic data proved that the global economy is entering a recession. The GBP USD dove from an early week high of 1.5884 by over 1000 pips to a low of 1.4557. Based on closing prices this represents a weekly fall of 6.09%.

The GBP JPY was also very weak, falling by 7.43% on the week. This time last week one GBP would have bought you over 153 Yen, however the exchange rate currently stands at 143.02.

Other than the UK Inflation Report last week’s major news announcements were Initial Jobless Claims which hit a 7-year high of 516K and US Retail Sales which managed all-time YoY lows. Headline Retail Sales were down 2.8% YoY in October while Core Retail Sales were down by 2.2%. These numbers are even worse than 2001’s post September 11th data.

This Week
Once again the world’s major economies will be active this week with plenty to keep traders occupied. We begin at 23:50 on Sunday with Japanese preliminary GDP QoQ. The data is expected to show that the Japanese economy grew by 0.1% in the 3rd quarter after a 0.7% contraction in the previous period.

On Monday we have Real Retail Sales from Australia at 00:30. This indicator strips out the effects of inflation on Retail Sales. On a quarterly basis traders are expecting a 0.4% increase. In the last quarter Real Retail Sales fell by 0.6%.

Tuesday will be a busy day with Australian, UK, US and New Zealand data due. We begin at 00:30 with the RBA Monetary Policy Meeting Minutes which will offer an insight into the 0.75% rate cut on November 4th.

At 09:30 the UK’s YoY CPI is due. Economists are expecting inflation to fall from the 5.2% seen last month to 4.8%.

High volatility from the US begins with the Producer Price Index at 13:30. PPI is expected to post a -1.9% MoM for October after the 0.4% decline seen in September. This is followed by TIC Net Long-Term Transactions at 14:00. Foreign purchases of US securities have been in decline in recent months with a surplus of $18.0B expected in October.

At 14:30 Fed Chairman and US Treasury Secretary Paulson will testify before the US House of Representatives Financial Services Committee on the Troubled Asset Relief Program (TARP). High volatility is expected while the pair are making their remarks.

The data from New Zealand will be in the form of PPI Input. This data measures the rate of inflation experienced by manufacturers when purchasing goods and raw materials. The index came in at 5.6% in September.

Wednesday continues where a busy Tuesday left off. RBA Governor Stevens will speak in Melbourne. His remarks are expected to generate high volatility.

At 09:30 the BOE’s MPC Meeting Minutes will be released. Traders are expecting the vote count to be unanimous in favour of November 6th’s 1.50% interest rate cut.

At 13:30 we will see two high volatility events from the US. Core CPI is expected to show a 0.1% MoM increase in October. This is in-line with September’s number. Building Permits are expected to show a slight decline in the annualized number of residential permits issued. A number of 770K is anticipated for October.

At 19:00 we will have yet more insight into recent central bank rate cuts with the FOMC Meeting Minutes. This release corresponds to the 0.50% rate cut seen on October 29th.

A busy week for the UK continues on Thursday with October’s Retail Sales number due. A MoM decline of 0.9% is expected, steeper than September’s 0.4% fall.

Particular interest will be paid to this week’s Initial Jobless Claims report from the US at 13:30. As we have already mentioned, claims hit a 7-year high last week at 516K with a slightly lower number of 508K likely this week.

On Friday morning the BOJ Interest Rate Statement will be released. Rates are expected to remain on hold at 0.30% with the BOJ Press Conference likely to be the high volatility event.

The final high volatility event of the week will come from Canada with the Core CPI release. September saw a 0.4% increase with October expected to be completely flat at 0.0%.

For further information and updates be sure to visit our economic calendar. This week US PPI, BOE MPC Meeting Minutes, US Core CPI and Canadian Core CPI will all be supported by our visual analysis and historical data tool.

 

Last Week
The BOE surprised traders last week when its Monetary Policy Committee (MPC) decided to cut interest rates by 150 basis points to 3.00%. The market had been expecting a much less aggressive cut to 4.00%. This move fuelled speculation that the BOE will need to cut rates at a faster pace than other central banks and heightened the likelihood that the Official Bank Rate will eventually reach 0.00%.

As you might expect, the GBP closed lower on the week against all other major currencies on the back of this speculation. Although the existing Sterling bearish trends remain in consolidation there are absolutely no signs of a reversal in the medium to long term. The Pound’s value over the coming months will depend on the pace at which the ECB, Federal Reserve and others slash rates. However, the ECB has demonstrated much more measured cuts and the Federal Funds Rate already sits at 1.00% with very little room to the downside.

In the US, Barack Obama became the first African-American President of the United States with 53% of the popular vote. One thing is for certain, he is unlikely to experience any honeymoon period when he is sworn in come January. He will be more than aware of the disappointing economic data coming out of the United States last week.

US Non-Farm Employment Change came in worse than expected at -240K compared to the -200K expected. To make matters worse, September’s data was revised down 125K to -284K. September and October’s data together make the worst two-month series since 2001. Unemployment also surged to the highest level since 1994. It now stands at 6.5%, much worse than the 6.3% expected and 6.1% seen in September.

This Week
The high volatility begins in the early hours of Monday morning this week with Australian Home Loans and the RBA Monetary Policy Statement. September’s Home Loans came in at -2.2% and a further MoM drop of 2.7% is expected to have occurred in October.

Also on Monday we have PPI Input from the UK. This data measures inflation in the prices paid by manufacturers for goods and raw materials. PPI Input is expected to come in at -2.6% MoM for October, compared to -1.2% the month previous.

High volatility from North America is also expected with Canadian Housing Starts expected at 13:15. In September construction on 218K new residential buildings began (annualized) with this number expected to fall to 202K in October.

Monday evening will play host to PPI Input from New Zealand. Prices in September increased by 5.6%.

Tuesday will be fairly quiet this week with French, US and Canadian bank holidays. Although some stock exchanges will remain open large banks will not. Low volatility is likely throughout the Forex market.

At 10:00 we will see high volatility from the German ZEW Economic Sentiment reading. A reading of -62.5 is expected, slightly higher than the -63.0 seen the month before but the index is fixed firmly in pessimistic territory.

At 20:00 the Reserve Bank of New Zealand will release its Financial Stability Report. The report is released twice per year and a press conference is usually held at the release time.

On Wednesday we will see employment data from the UK with Claimant Count Change regarded as most important. It is expected that 40K more UK workers are out of employment, and consequently claiming unemployment benefit when compared to a month earlier.

More high volatility will come from the UK at 10:30 with the BOE Inflation Report due for release. Of course traders will be watching this report closely because it explains the Bank’s view of inflation over the coming two years. However, further interest cuts in the UK may already be set in stone despite these inflation projections.

At 21:45 we will see Core Retail Sales and Retail Sales from New Zealand. The core number is expected to fall by 0.1% MoM compared to a 0.8% increase in September, while the headline number should grow by 0.1% on the month. Growth of 0.4% was seen in the month of September.

Thursday will see Germany deliver its second high volatility release of the week with preliminary quarterly GDP. The German economy is expected to have contracted by 0.2% over the last quarter.

At 13:30 we will see Trade Balance data from the US and Canada. The US trade deficit probably shrunk slightly in October from $59.1B to 56.5B. In Canada, trade surplus is expected to have fallen by CAD 700M to 5.1B.

After a fairly quiet week the US will finish with a flurry of high volatility with no less than 4 such events on Friday, although it does share one of these with the Eurozone.

At 13:30 we will see Core Retail Sales and Retail Sales releases. The core number likely fell by 1.1% on October when compared to -0.6% in September. Headline Retail Sales are expected to have fallen by 2.0% over the same period.

Also at 13:30 we have Fed Chairman Bernanke and ECB President Trichet taking part in a panel discussion at the 5th ECB Banking Conference in Frankfurt. The discussion will be on the topic of "International Interdependencies and Monetary Policy - a Policy Maker's View".

To round up the week we will see preliminary University of Michigan Consumer Sentiment with a reading of 56.0 expected.

Canadian Core CPI and Headline CPI both beat analyst forecasts in September but overall inflation has begun to slow on a yearly basis, Statistics Canada reported today.

Headline Consumer Price Index came in at 0.1% MoM compared to the -0.1% that had been expected for September. This brought the yearly number to 3.4%, down from 3.5% in the previous month. August’s reading had been the highest in more than 5 years.

The slowing of prices was due in most part to Shelter (down 0.6% MoM), Clothing and Footwear (down 0.3% MoM) and Transportation (down 0.6% MoM) on a seasonally adjusted basis.

Core CPI, which strips out the most volatile items, increased by 0.4% MoM, better than the 0.3% that had been expected. On a yearly basis Core CPI now stands at 1.7%, unchanged from the previous month.

Will today’s data influence the BOC at their next interest rate meeting on December 9th? Probably not. The BOC’s primary concern is the dwindling economy and falling commodity prices. The Bank sees inflation falling below 1.0% over the coming year.

This week’s BOC Interest Rate Statement saw the Overnight rate cut by 0.25% to 2.25%. The USD CAD climbed to its highest level since May 2005 today, recording a high of 1.2841.

The Bank of England’s MPC voted unanimously to cut rates by 0.50% to 4.50% on October the 8th as part of the coordinated move by major central banks.

BOE Governor King briefed the committee on discussions with other major central banks and asked them whether they wished to support the action.

The Monetary Policy Committee has decided that the recent credit market turmoil has reduced the risk of increasing inflation in the English economy. “All these developments pointed to the need for a relaxation in monetary policy. In the current financial market turbulence, the reduction in Bank Rate that would ultimately be required to meet the inflation target was very difficult to gauge.”

This news comes as no real surprise to economists with BOE Governor King’s speech last night dominating headlines.

King admitted that the UK economy was probably already in recession, for the first time in 16 years.

“Not since the beginning of the First World War has our banking system been so close to collapse,” said King, frankly. Traders are already pointing to the use of the word ‘recession’ as an indication of yet more interest rate cuts to come. The market is currently anticipating another 50 basis point cut at the November meeting.

Since King’s comments and the MPC Meeting Minutes the Pound Sterling has fallen to a five-year low against the Dollar reaching 1.6134 in New York trade.

Last Week
Global markets stabilised a little last week as fears of a worldwide market meltdown were eased. Words of support from world leaders began to transform into solid action plans and in some cases actual cash injections.

However, worries over global recession were remembered after a host of poor economic data, especially from the US. Traders were especially worried about US Core Retail Sales, Retail Sales, Building Permits and Housing Starts. All four economic indicators missed expectations and this was reflected by the Michigan Consumer Sentiment number which fell from 70.3 to a lowly 57.5.

This Week
The economic calendar is slightly lighter than normal this week which may keep both stock and forex markets in consolidation. Key events will be the RBNZ and BOC Interest Rate Statements, Bernanke testimony and the BOE Meeting Minutes.

The first high volatility event of the week come from Australia at 01:30 Monday morning. The Australian PPI is expected to come in at 0.9%, compared to 1.0% in the previous quarter.

Later the same day we will see probably the most highly anticipated US event of the week with Bernanke’s testimony before the House of Representatives Budget Committee at 15:00.

At 22:45 we will see QoQ CPI data from New Zealand. Inflationary pressures are expected to moderate slightly from 1.6% previously to 1.5%.

Tuesday will begin with more high volatility from Australia. The October 7th Interest Rate Meeting Minutes are expected. Traders will be very interested in the discussions that took place at a meeting where the RBA surprisingly by cutting a full 100 basis points to 6.00%.

At 03:10 RBA Governor Glenn Stevens is expected to bring more high volatility to the markets when he speaks about the international economy in Sydney.

The BOC Interest Rate Statement is due at 14:00 with a 0.50% cut expected. This will bring the Overnight Rate to 2.00% from 2.50%. This will mean that the BOC has cut the rate by a full one-percentage point in the last 14 days.

We will see some late volatility from the UK as BOE Governor Mervyn King speaks in Leeds. He is due to speak at 20:10 UK time.

The flurry of Australian data continues on Wednesday with the Australian CPI. Economists are expecting an AUD negative release with 1.0% consumer inflation compared to 1.5% in the previous quarter.

At 09:30 we will hear from the BOE Monetary Policy Committee with the BOE Meeting Minutes (visual analysis) release. It is expected that the MPC voted unanimously to cut rates by 0.50% on October 8th as part of the coordinated global move.

The USD/ CAD will be in focus at 13:30 with Canada’s Core Retail Sales expected to crate high volatility. Core sales are expected to moderate slightly down to 0.3% growth in September from 0.4% in August.

Wednesday is rounded off by the second central bank rate announcement of the week. The RBNZ Interest Rate Statement is due at 21:00 with the Official Cash Rate likely to be cut by 1.00% from 7.50% to 6.50%. This mirrors the actions of the RBA earlier in the month who also cut by 1.00%.

The first high volatility event of Thursday will be from the UK. Retail Sales is due at 09:30. This data has been highly volatile of late and this trend looks set to continue. Retail Sales for September are expected to have fallen by 0.8% in September when compared to a 1.2% increase in August.

The Bank of Canada will take the spotlight for the second time in a week on Thursday. The BOC Monetary Policy Report is due at 15:30 and BOC Governor Carney will hold a press conference on the same topic at 16:15.

On Friday morning we are due to see preliminary GDP data from the UK. Gross domestic product is expected to show negative growth of 0.2% after the previous quarter’s number of 0.0%.

Canada’s Core CPI (visual analysis) is due at 12:00 with growth in September expected to mirror that of August at 0.3%. Traders pay most attention the Core number and so does the BOC.

To round off the week we have Existing Home Sales (visual analysis) from the US. This release will also be supported by our visual analysis and historical data tool. The sale of existing residential homes is expected to have increased slightly in September with 4.95M units sold compared to 4.91M in August.

The BOE Interest Rate Statement is due on Thursday October 9th at 12:00 UK time. Following the shock 1.00% rate cut from the Reserve Bank of Australia, the BOE’s release will be more highly anticipated than usual.

Economists have been expecting a cut of 0.25% from the BOE which would reduce rates to 4.75%. However, economists had only been expecting a half-point cut from the RBA. Speculation is growing over whether we will see a coordinated, significant cut from the BOE this week and the Fed on October 29th.

This video takes a look at the short-term areas of support and resistance that may cap price action in the GBP/USD until the interest rate statement on Thursday.

Watch a higher resolution version of our UK Interest Rate Preview here.

IMPORTANT NOTICE: These comments are for information purposes only. The information contained on this document does not constitute a solicitation to buy or sell by passion-trading.com, and/or its affiliates, and is not to be available to individuals in a jurisdiction where such availability would be contrary to local regulation or law. Opinions, market data, and recommendations are subject to change at any time. Forex trading involves substantial risk of loss and is not suitable for all investors.

Chart of the Day for October 7th 2008 takes a look at the Australian Dollar (AUD). After the shock 1.00% RBA interest rate cut we take a look at the long-term picture and use technical analysis to identify a strong area of demand that is coming into play and supporting the market. We also have 50% and 61.8% Fibonacci Retracement levels to contend with.

Follow this link to watch a high-resolution version of the AUDUSD Technical Analysis video or play the video below.

IMPORTANT NOTICE: These comments are for information purposes only. The information contained on this document does not constitute a solicitation to buy or sell by passion-trading.com, and/or its affiliates, and is not to be available to individuals in a jurisdiction where such availability would be contrary to local regulation or law. Opinions, market data, and recommendations are subject to change at any time. Forex trading involves substantial risk of loss and is not suitable for all investors.

The Reserve Bank of Australia surprised investors over night by cutting the Cash Rate to 6.00%, a full 1.0% cut. The market had been expecting a 0.50% cut to 6.50%.

Last night’s rate change was the largest since December 1994 and it sent the AUDUSD tumbling to an overnight low of 0.7025, re-testing yesterday’s low of 0.6982. This represents the lowest price since September 2004.

Since then price has rebounded to a current high of 0.7355 in early London trade. This is a sign that demand has entered the market once again, at least temporarily.

In the accompanying statement, RBA Governor Glen Stevens said “conditions in international financial markets took a significant turn for the worse in September.”

“Demand and output could be significantly weaker than earlier expected.” He added, “an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers.” However, this will not be a pattern for future rate decisions.

Elsewhere the BOJ kept rate unchanged at 0.50%, sighting a sluggish economy. The vote to maintain the overnight rate was unanimous as expected. “While carefully monitoring movement in global financial markets, we will continue to strive to maintain market stability.”

Chart of the Day for October 5th looks at the EURUSD as it stands at the close of play on Friday evening.

In recent months we have broken through several key support areas and on Friday we made a new low for the current bear swing.

For a full explanation of the technical picture watch the video below or a higher resolution version here. N.B. The video also includes an explanation and examples of an advanced stochastic breakout trade.

IMPORTANT NOTICE: These comments are for information purposes only. The information contained on this document does not constitute a solicitation to buy or sell by passion-trading.com, and/or its affiliates, and is not to be available to individuals in a jurisdiction where such availability would be contrary to local regulation or law. Opinions, market data, and recommendations are subject to change at any time. Forex trading involves substantial risk of loss and is not suitable for all investors.