US Open Note – Dollar keeps heading higher; pound back to gains after BoE decision

Melina Deltas, XM Investment Research Desk

Pound return to gains after BoE decision; Eurozone retail sales come up

The key driver of the day is the Bank of England (BoE) interest rate decision. The pound jumped higher, returning above 1.3650 versus the US dollar, as the BoE left its bank rate unchanged at a record low of 0.1% and its bond-buying program unaltered during its meeting. The crucial point is that the BoE said that its actions should not be taken as a signal that negative rates are coming and that has seen a push back in rate cut expectations.

Policymakers mentioned that vaccines against coronavirus have been deployed in several countries, including the UK, improving the economic outlook. However, there are still some concerns about the increase in Covid-19 cases from the additional strains of the virus and the associated reimposition of restrictions.

Eurozone retail rates jumped 2% in December from 5.7% previously, beating market expectations of a 1.6% gain. The euro plunged to a new two-month low versus the US dollar, falling below the 1.20 handle. Euro/pound completed a fresh nine-month trough at 0.8770.

Dollar rises; US stocks are flat

For the quarterly refunding plans, the US Treasury announced more details yesterday, while the Democrats approved the relief plan of $1.9 trillion in the House of Representatives, without securing Republican support in the Senate.

Initial jobless claims came out today. The number declined to 779 thousand in the week ended January 30, from the previous figure of 812 thousand. The US dollar index is moving higher for the fourth session in a row, heading above the 91.30 level. Dollar/yen is extending its run of gains, towards a fresh almost three-month high around 105.33, however, US stock indices are expected to open flat.

Gold and silver are slipping as yields on US 10-year Treasury yields held just shy of eleven-month highs.

Overnight, at 00:30 GMT, the RBA monetary policy statement will be announced at the same time with retail sales.