The Bank of England maintained interest rates at 0.75% with a 9-0 vote, both decisions in line with consensus forecasts.

A downgrading of Euro-zone growth forecasts reinforced negative sentiment on the global growth outlook.

Euro sentiment remained weak and the dollar maintained a strong tone at 2-week highs with defensive support as commodity currencies remained under pressure.

Fresh uncertainties over US-China trade talks helped push equity markets lower.

Global demand concerns also undermined oil prices during the day.

Precious metals were resilient with gold holding above $1,300 per ounce.

After an initial slide following the Bank of England rate decision there was a quick recovery with relatively hawkish rhetoric compared to other global central banks.

The Bank of England maintained interest rates at 0.75% with a 9-0 vote, both decisions in line with consensus forecasts.

The 2019 GDP forecast was cut to 1.2% from 1.7% previously, the lowest reading since 2009. Inflation was expected to dip below the 2.0% target in the short term, but the labour market remained tight with wages growth of 3.4% in the latest data was 0.5% above the rate expected in the November inflation report. In this environment, inflation as expected to settle just above the 2.0% target and the end-year 2019 forecast was increased.

Overall, further gradual and limited increases in interest rates were expected. Governor Carney stated that central expectations were for some form of Brexit deal to be reached. He also stated that markets should not price out further rate hikes with limited and gradual hikes likely if Brexit uncertainty is resolved.

Although there were dovish elements and futures markets cut the chances of a 2019 rate hike, the rhetoric was relatively hawkish in comparison with other global central banks and Sterling recovered strongly after initial losses.

Prime Minister May put an optimistic slant on talks in Brussels, but with no substantive developments. Further talks will be held while intense parliamentary manoeuvring continued. GBP/USD settled around 1.2950 from lows near 1.2850 while GBP/EUR rallied to near 1.1450 before retreating to 1.1410 and the UK currency held steady on Friday.

Economic Calendar

07:00German Trade Balance(DEC, 2018)18.4B19.0B
07:45Industrial Output MM(DEC, 2018)0.80%-1.30%
09:00Industrial Output YY WDA(DEC, 2018)-3.00%-2.60%
09:00Industrial Output MM SA(DEC, 2018)0.40%-1.60%
13:15CAD Housing Starts(JAN)-213.4K
13:30CAD Employment Change (M/M)(JAN)-9.3K
13:30CAD Full Employment Change(JAN)--18.9K
13:30CAD Unemployment Rate (M/M)(JAN)-5.60%
15:00USD Wholesale Inventories(NOV 22, 2018)-0.30%
18:00USD Baker Hughes US Oil Count--

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.