BoE Policy Announcement Today
The Bank of England (BoE) is scheduled to announce its latest interest rate decision today, a day after the new Budget was delivered, amid heightened expectations that the central bank will retain its current monetary policy stance. The accompanying BoE meeting minutes will attract significant attention as markets look for hints on whether policymakers are considering quantitative easing in light of a weaker global economy, persistently low inflation, as well as the upcoming vote on the European Union (EU) membership.
The US Federal Reserve (Fed), yesterday, struck a somewhat dovish tone, cautioning that global economic and financial developments continue to pose risks to the US economy. Moving ahead, two US reports, including weekly jobless claims data and the Philadelphia Fed’s manufacturing activity report, will add to evidence about the state of the US economy.
Pound Sterling – UK Markets
The Pound is trading higher against the greenback this morning ahead of the BoE’s latest policy announcement which is due in a few hours. Markets widely anticipate that the benchmark interest rate will be left unchanged at a record low today, where it has stayed put for seven years.
Investor focus will more be on the minutes of the policymakers’ discussions which will accompany the BoE’s latest rate decision today, especially after the BoE Governor indicated last month that there is considerable room to loosen the policy if needed. Also, the risks stemming from the June EU referendum increases the possibility of a rate cut this year. Meanwhile, the MPC statement and minutes could also acknowledge that global financial markets have calmed down since the last meeting. Domestic indicators have been mixed with recent data suggesting that wage growth has ticked up, while Markit’s survey data on the UK’s service sector hint that the UK economy might be heading for a slowdown. Yesterday, the UK Chancellor significantly lowered the nation’s growth forecasts in his Budget speech.
US Dollar – US Markets
The US Dollar traded broadly lower against the basket of major currencies yesterday after the Fed painted an uncertain picture of the US economy in its latest interest rate statement. The Fed revised US economic growth and inflation expectations lower and suggested that the central bank would only raise rates two times this year. The Fed seemed wary about the looming global economic uncertainty and volatility in financial markets that continued to pose a risk to the US economy. The Fed Chairperson, Janet Yellen, stated at a press conference that she was not convinced by apparent signs of upward inflationary pressures. However, that seemed at odds with yesterday’s report of better than expected growth in core consumer prices for February compared to a year ago, which signalled that the central bank’s efforts to push up inflation were having the desired effect.
Today, the greenback continues to trade on a weaker footing against most of the major currencies. Later in the day, investors will eye the weekly update on unemployment claims and the Philadelphia Fed Manufacturing Activity Survey for further trading direction.
Euro – European Markets
The shared currency has retraced above the 1.12 mark against the US Dollar this morning, amid broad based weakness in the greenback in the wake of yesterday’s dovish statement by the Federal Open Market Committee (FOMC). At the same time, the Euro – Pound currency pair has kept its upside momentum intact ahead of the crucial BoE interest rate announcement, due later today. On the data space, Euro traders will eye the Euro zone’s final inflation figures for February which are scheduled for release in a short while. Data is expected to confirm that the core inflation rate in the Euro zone turned negative in February, compared to a year ago, vindicating the European Central Bank President’s latest move to boost stimulus. The Euro zone’s consumer price index is still estimated to show a minor improvement in February compared to the previous month.
Also on tab will be the Euro zone’s trade data which is due for release around the same time as inflation data. Expectations are for data to show that the Euro zone’s trade surplus narrowed at the start of the year, probably due to waning overseas demand.
Other Currencies – Highlights
The Australian Dollar - US Dollar currency pair has surged above the 0.76 mark today, first initiated on the back of a surprisingly dovish FOMC and then followed by a mixed Australian jobs report. As reported earlier, Australia’s unemployment rate unexpectedly fell in February as a large number of people gave up looking for work. However, the number of jobs added during the period was far below market expectations. Still, the job figures could be considered positive as the creation of full-time positions offset a strong fall in part-time jobs. The Reserve Bank of Australia had recently highlighted the significance of the health of the labour market on the nation’s economy, hence, today’s jobs update is more likely to dampen expectations of a near-term rate cut by the central bank.
Considering that data is extremely thin in Australia for the remainder of this week, investors will likely keep tab on a set of US macro prints due later today and broader market sentiment for further direction in trading in the currency pair.