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Dollar steady, sterling waits for BoE rate cut decision

The dollar held steady above a recent six-week low on Thursday, while sterling stayed in a tight range with expectations running high that the Bank of England will cut interest rates for the first time since 2009 in a bid to ward off recession.

The dollar index, which tracks the greenback against a basket of six major currencies, was flat at 95.565 .DXY, holding above a near six-week low of 95.003 touched earlier this week.

The near-term focus for the dollar is whether U.S. jobs data due on Friday will revive expectations for the Federal Reserve to raise interest rates later this year.

Fed's Evans says one rate hike may be 'appropriate' this year

Chicago Federal Reserve Bank President Charles Evans on Wednesday offered a lukewarm endorsement of an interest rate increase later this year, despite his worry that inflation is still undershooting the U.S. central bank's 2 percent target.

"I think the real economy is doing quite well in the U.S., especially given all the headwinds we are facing," including slower growth in Europe and China, Evans told reporters in a group interview in Chicago.

"I do think that perhaps one rate increase could be appropriate this year," he said, adding later in an aside, "even if I would prefer none until we saw inflation much more strongly."

UK’s PMI index hit rock bottom

Following the July’s policy meeting, economic data from the UK, in terms of forward looking indicators have shown a steady deterioration in sentiment. While the Q2 GDP report showed that the UK’s economy expanded at a pace of 0.60%, the GBP was justified by staying muted to the GDP print as the period did not quite accurately capture the post-Brexit sentiment.

This week’s PMI surveys from Markit/CIPS confirmed the fears that a vote to leave the EU would send the UK’s economy into a recession.

The all-sector PMI index hit rock bottom, falling to 47.3 in July compared to 51.9 in June. It was the biggest one-month drop in the 20-year history for Markit. Construction, manufacturing, and services PMI all fell below the 50-level of the index pointing to a severe contraction in the sectors, which are often strong contributors to the GDP. Markit said,

BOE 'Sledgehammer' Could Deliver Another Blow to the Pound (REPEAT)

The pound's fate may hinge on the shape of today’s expected stimulus announcement.

With the U.K. economy undergoing a crisis of confidence, the Bank of England is gearing up to loosen policy this week. Market participants are waiting to see if the BOE adopts the 'sledgehammer' strategy advocated by its chief economist Andrew Haldane, or takes a more muted approach.

♦ RATE CUT: Seen as the most likely choice, all but two of 52 economists in a survey predict the Monetary Policy Committee will slash its key rate for the first time since 2009. Most forecast a 25 basis-point reduction to a record-low 0.25 percent. While this would have the most direct impact on the nation’s growth engine — consumers — it risks squeezing banks’ margins. With Carney previously signaling a reticence to cut below zero, any comments on how low the rate could eventually go or the potential for negative rates, will be closely scrutinized.

♦ QUANTITATIVE EASING: The central bank has already scooped up about a third of the U.K. government bond market as part of a program that started in March 2009, and could outline plans to buy more. Economists are less certain about this, with 23 of 44 surveyed saying the asset-purchase target will be left at 375 billion pounds ($499 billion). Of those that see an expansion, estimates range from 10 billion pounds to 150 billion pounds. While this might bolster confidence, gilt yields are already near record lows, t.

Investors are still downbeat on sterling.