Sterling improves against EUR and USD as BoE interest rate meeting approaches
What’s been happening?
Pound Sterling – UK Markets
The British pound has seen an improved rate against both the US dollar and euro over the last couple of days as markets gear up for the Bank of England’s May policy announcement. While a ‘May rate rise’ is no longer expected at this occasion, the BoE’s direction and details discussed within the Inflation Report could be of utmost importance in setting up market expectations for an August rate hike. Such outcome is expected to support the sterling. Initially running at an 80% likelihood, the May interest rate rise continued to be hit by ad readings that subsequently weakened that expectation. Q1 GDP print followed by poor PMIs for April out in the first week of May were the biggest negative hits.
Britain’s biggest telecoms group BT are set to cut 13,000 managerial and back office jobs and leave their London headquarters following an accounting scandal and decline in trading. CEO Gavin Patterson, who has been in the role since 2013, is aiming to keep shareholders by maintaining its dividend and establishing a new pension funding plan. The restructuring is expected to modernise the former state-owned telecom monopoly, with a plan to hire about 6,000 new engineers and front-line customer service staff to support its delivery of fibre and 5G networks. The group reported a 3% drop in Q4 revenue to £5.967 billion, missing analysts’ expectations by a bit.
US Dollar – US Markets
Following President Trump’s announcement to withdraw the US from the Iran nuclear deal, US crude oil prices have been hitting new highs, with a possibility to reach $80 per barrel mark in the short term. The new US sanctions will be placed on Iran within the next six months. The EIA recently announced that crude oil inventories abruptly fell by 2.2 million barrels in the week to May 4, after a diffident rise the week before. Crude prices are likely to keep shifting in the months to come as US/Iran situation develops.
RBS has reached a $4.9 billion deal to settle US mortgage bond investigation into its sale of mortgage-backed securities. Analysts initially had estimated that the U.S Department of Justice could impose a fine of up to $12 billion on RBS for mis selling mortgage backed securities coming up to the 2007 – 2008 economic crisis. This final agreement will draw a line under RBS’s last remaining major lawsuit issue, which had affected its share price significantly, as well as blocked surplus distributions to shareholders and complicated the UK govt’s plan to sell down its more than 70% stake.
Euro – European Markets
The European Union is currently sitting in the hot seat, with a high expectation from the Iranian president Hassan Rouhani for the EU to save the deal, however Rouhani did describe this as a “very limited opportunity”. Efforts will be made to arrange a crisis meeting with Iran as soon as possible. Trump did not only break the landmark 2015 agreement, but also warned that he would seek to hit European businesses that continued to trade with Tehran. The EU promised to make efforts to immunise firms from any US sanctions.
The EU ministers are planning to put forward a credible package to appease Iranian fears about the effects that Trump’s decision on EU/Iranian trade has brought into picture. A meeting that is currently set to take place on Monday in London will aim to reassure Tehran that the nuclear deal is salvageable.
What’s coming up?
UK: The biggest data coming out of the UK today is that from the Bank of England, where an interest rate decision will be announced. Even though a hike is no longer expected, markets will be focusing on any indication about a possible hike in August.
US: Markets will be focusing on a couple of important figures coming out from the US today. Consumer Price Index and average earnings data will be of key importance.
EU: No major data is expected to come out of the Eurozone today. Euro markets will be looking at GBP fluctuation as Bank of England’s interest rate decision is announced.