BoE less likely to increase interest rates in May
What’s been happening?
UK: It now looks ‘less’ likely that the BoE will move to increase rates next month, after dovish comments by BoE Mark Carney yesterday triggered a pound sell-off. CPI missed expectation in the UK, coming in 0.2% lower than expected and has taken the pressure off the BoE to increase rates. Carney reiterated the fact that rate hikes would be gradual over the next few years, pointing out that there are ‘other meetings’ this year, hinting that a rate rise next month is now a lot less likely to happen. Disappointing retail sales figures further compounded the case that it is unlikely we will see a hike next month, culminating in two-week lows for GBP/USD following the announcement. Chances of a rate hike next month have now fallen from 86% to 54%. The pound has also lost ground against the euro and has fallen circa 2 cents over the past two days.
EU: The euro hasn’t really left the comfort zone against the US dollar of its recent range and is managing to hold on in the face of weak eurozone data. The euro made gains against JPY and hit a two-month high due to a recovery in risk appetite. German PPI was out early this morning and fell just short of both the YoY and MoM figures. The market will now focus in on Mario Draghi and his band of policy makers next Thursday, as the ECB interest rate decision looms. There is no expectation for any change, but the market still needs clarity on when the bank’s QE policy will definitively end.
US: It was not so much about dollar strength, but sterling weakness yesterday. The dollar breathed a sigh of relief from recent pound pressure as question marks were raised over the likelihood of a rate rise in the UK next month. There has not been too much movement from EUR/USD over recent days and until the European Central Bank gives direction on its QE program, the pair could be very much range bound.
What’s coming up?
UK: BoE member Saunders will be speaking today, and it will be interesting to see if there are any comments made that support the recent views of governor Mark Carney. Key data for the UK next week will be on Friday, where GDP for the year will be revealed.
US: Data is light out of the States today with only Fed member Evans speak on the economy and monetary policy. The next significant data point comes on Tuesday next week in the form of consumer confidence and durable goods on Thursday.
EU: We have the ECB’s rate decision on Thursday next week, which will be the focus for Europe. Today we have consumer confidence out in the afternoon.
AUD moved even lower overnight against the US dollar and the greenback has appreciated against a basket of currencies as bond yields have moved to their highest level since 2008. Despite the poor employment figures from Australia yesterday, the Aussie made gains against the pound due to dovish comments by BoE head Mark Carney. CPI missed expectation in the UK and took the pressure off the BoE to increase rates, Carney reiterated the fact that rate hikes would be gradual over the next few years. CPI is out from Canada this afternoon with an expectation of 2.4% and the Bank of japan will deliver their rate decision later next week.