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Markets Await BoE Interest Rate Decision.

By Jake Trask

Lunchtime today sees the Bank of England’s latest interest rate decision along with its quarterly Inflation Report. Around three weeks ago it was all but guaranteed that we would be seeing a 25bp hike in Bank Rate however after a stream of soggy data and a dovish interview by BoE Governor, Mark Carney with the BBC where he highlighted (again) his concerns the impact Brexit could have on the UK economy. The likelihood of a hike have therefore dropped from around 80% chance to 15% chance and the pound has tanked as a result. The Inflation Report will contain its latest predictions for growth as well as inflation with downgrades expected to both. What traders will be looking out for is the message that Carney gets across as to the timing of future rate hikes. Should he indicate August is a live vote then expect sterling to rally, should he indicate hiking this year is an option it could swing either way and should he close the door on rate hikes this year altogether then we will likely see the pound drop another leg lower. Before that we have Manufacturing Production figures at 9:30am with another -0.2% reading expected. GBP/USD is heading lower after a buoyant Asian session trading around the 1.3550.

The dollars rapid advance over recent weeks seems to be coming to an end with EUR/USD seeming to have found a floor at 1.18 and USD/JPY a ceiling at 110. After the sharp moves of late more moderate gains now seem more likely and the latest CPI numbers from the States due this afternoon are the next figures that will guide its direction. After last month’s drops the core and overall reading are expected to move higher by 0.2% and 0.3% respectively m/m. Unemployment Claims are due to show further evidence of a very tight labour market with 219k expected. As US/Iran relations continue to deteriorate US/North Korea relations continue to improve with North Korean leader Kim Jong-Un releasing three American detainees on the back of US Secretary of State, Mike Pompeo’s visit to Pyongyang. The gesture seems to have aided risk sentiment with USD/JPY making another play for 110.

It’s a relatively quiet day in Europe as many countries enjoy the Ascension Day public holiday so thin trading could lead to some bigger than expected moves in the forex world. The only notable event for the rest of the week in the Eurozone is a speech by ECB President, Mario Draghi in Florence although no hints on a possible QE taper is expected before the June monetary policy get-together. EUR/USD trades at 1.1865 and GBP/EUR is back above 1.14.

The Aussie has started to head back towards 75 cents this morning aided by improving risk sentiment on the back of the US prisoner release by Kim Jong-un which lifted Asian equities. There is little news from Australia for the rest of the week so expect American data/yields, Trump and Iran/NK will likely be the main drivers for the local unit. GBP/AUD hovers around 1.81.

CAD has staged a recovery (of sorts) this week as the rising price of crude on the back of Trumps Iran decision buoys the loonie. The markets were relatively unaffected by Trumps decision to reinstate sanctions as it was widely expected so the potential rattling of riskier assets never really materialised. Tomorrow sees employment data and the unemployment rate which is expected to be unchanged at 5.8%. GBP/CAD is around 1.73 and USD/CAD is down to 1.2780 after threatening 1.30 earlier this week.

The Kiwi fell overnight as the Reserve Bank of New Zealand left the door open for future interest rate cuts to combat under-target inflation. The dovish tone of the statement sent the Kiwi lower with NZD/USD gapping around 40 pips before dropping to an Asian session low just above the .69 handle. NZD is finding little love at the moment as concerns over Jacinda Arderns government and the aforementioned under-target inflation weighing on sentiment. GBP/NZD trades at 1.9525.