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Sterling slips as Bank of England leaves rates on hold.

By Jake Trask

Sterling wobbled yesterday as The Bank of England’s Monetary Policy Committee decided to keep rates on hold at 0.5%. The decision to stay put was no surprise however the accompanying Inflation Report, statement and press conference by Mark Carney highlighted how the economy had hit a soft patch of late adding drag to growth. A lot of this drag was put down to the bad weather seen in Q1 however recent poor data indicates this has rolled over to Q2 and can’t all be attributed to the Beast from the East. Markets still expect a 2018 rate rise however an August move now looks to be off the table leaving around an 80% chance of a hike in November. The only data of note yesterday from the UK was Manufacturing Production m/m which dipped -0.1% slightly better than had been expected. GBP/USD continues to hover around the 1.35 handle.

Dollar bulls were dealt a blow yesterday as CPI from the States missed target with the overall reading and the core reading printing 0.2% and 0.1% respectively, 0.1% lower than was expected for each. The dollar has been on a tear of late with the chances of four rate increases from the Fed currently around one in three. This soft print has seen USD/JPY again fail to breach 110 after coming within a hairs breadth again yesterday, it has since retraced to around 109.35. EUR/USD has regained the 1.19 handle again highlighting the dollar run (for now) has run out of steam. There is no top tier data from America today so politics and Trump will likely be the main drivers for the dollar.



It has been a very quiet week in the Eurozone with little data of note and bank holidays leading to thin trading conditions. The main news over the past 24 hours has come from Italy where the anti-establishment Five Star Movement and right-wing League party are reportedly close to forming a coalition government after months of political wrangling. There has been little reaction in the FX space after the reports however the spread on Italian and German yields is at its widest since March as investors begin to get a touch jittery over what the populist policies could mean to the country with Europe’s largest debt burden. EUR/USD hovers around the 1.19 handle with GBP/EUR around 1.1350.

The Aussie gained from yesterday’s soft inflation data from the States with AUD/USD pushing back above 75 cents where it appears to have gained a foothold. There has been little data of note from Oz in the second half of the week so attention will now turn to Tuesday’s minutes from the RBA's last interest rate decision. At present there is little chance of a hike this year from the RBA so Aussie-bulls will be hoping for an upbeat tone from the meeting. GBP/AUD is at 1.7945.

The only top tier data in the G10 space comes from Canada later today where we get the latest unemployment/employment figures. An additional 17.8k people are expected to have been added to the workforce in April, a fall of around 15k from the month before. Unemployment is expected to remain at 5.8%. USD/CAD remains under 1.28 given support of late by the rallying price in oil. GBP/CAD trades at 1.7260.

The Kiwi has failed to regain the 70 cents handle against the greenback despite soft US inflation numbers and gains in Asian stock overnight. The one data-set of note overnight was the Business NZ Manufacturing Index print which ticked up to 58.9 from a revised 53.1. Next week sees the budget from NZ with investors eyes keenly awaiting changes in policy from Prime Minister, Jacinda Ardern’s Labour Government. GBP/NZD is at 1.9410.