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BoE pause may not be as far away as thought

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By Craig Erlam  

A big couple of weeks are in store for the Bank of England and Friday’s figures may support the case for a ​ more balanced debate on September 21, as policymakers hinted this week.

Inflation is by no means under control, but it is falling fast and, if the BoE is to be believed, it is expected to fall markedly over the remainder of the year. If the MPC is going to be confident of inflation returning sustainably to 2%, the labour market will likely be key to it, so there’ll likely be a much greater focus on it going forward.

We’re already seeing some progress on this front, but much more is likely needed.

Friday’s survey from KPMG and REC suggests more weakness is on the horizon. Permanent placements, availability and salaries are all promising from a BoE perspective and may contribute to some lively debate in a couple of weeks.

Of course, surveys alone won’t be enough to convince them. The UK jobs report next week could offer another helping hand and put the decision on the 21st much more in the balance.

Markets are currently convinced that another hike is coming, but that may change if unemployment ticks higher again and wages soften.

Energy

Oil prices have consolidated a little as we’ve moved through the week, but the trend remains very positive for crude, backed once again by the decision from Saudi Arabia and Russia to extend supply restrictions to the end of the year.

That’s a lot more oil off the market at a time when it’s clearly quite tight, albeit with a global economic outlook that is highly uncertain.

Demand may still wane, but traders appear to be working on the assumption of soft landings and mild recessions at worst. China is another unknown with slow and steady growth, by its standards, looking like the path ahead.

Strike action in Australia is underway and could intensify over the next couple of weeks after talks between unions and Chevron collapsed.

Australia is a major exporter of LNG and the market is tight, which is why we’re seeing such sensitivity to the strike action. The coming days could be crucial and therefore extremely volatile, with European gas prices on Friday trading around 10% higher.

Gold

Gold had another interesting week, with last Friday’s jobs report feeling like a distant memory. It didn’t give it anything like the boost that it appeared it would on the basis of the numbers themselves, almost all of which looked very favourable.

It has slumped again this week and the ISM services survey won’t have helped, with it giving the impression of a strong and resilient economy.

Not a bad thing in ordinary circumstances, but not ideal when the idea, or hope, is that the Fed will be able to cut rates again soon after such an aggressive tightening cycle.

Perhaps the yellow metal has found steady ground in the $1,900-1,950 region as we await next week’s inflation data and the Fed meeting the following week.

Crypto

Bitcoin continues to struggle despite the recent victory for Grayscale and arguably the industry as a whole.

There are still many obstacles to overcome on the road to mainstream adoption, this was just a particularly frustrating but necessary one along the way.

In the meantime, bitcoin finds itself back around $25,000 and looking rather uninspired. Of course, as we’ve seen so often in the past, that can change in a heartbeat.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.