Category Archives: FX News

The Bank of England’s May meeting was the centrepiece of Thursday’s macro diary. As expected, the central bank maintained the key interest rate at 5.25%. However, the BoE adopted a dovish stance. Indeed, Governor Bailey did not rule out a rate drop at the upcoming meeting on June 20th. 

He stated that by this meeting, the BoE would have two full sets of data, including two months’ worth of inflation figures. He also mentioned that the Bank of England may need to decrease interest rates more than markets are currently pricing in. Market rate expectations were not significantly influenced by Governor Bailey’s comments or the dovish tone of the meeting statement/minutes. 

Sterling had some early downward pressure following the BoE press conference, but this was short-lived. Instead, over the last 24 hours, the dollar has fallen modestly against both the euro and pound. The dollar suffered from a negative surprise in the weekly unemployment claims statistics. 

The UK remains in the spotlight today, with the early morning announcement of Q1 GDP. It revealed that the economy returned to growth in the quarter, expanding by a better-than-expected 0.6% quarter on quarter (vs. 0.4% forecast). The news has given sterling a boost in this morning’s FX session. Later today, the ECB meeting account and US consumer sentiment (May) are the important announcements to watch.

Today’s most crucial economic event is the Bank of England monetary policy announcement at midday. It is anticipated that the BoE will keep rates unchanged at 5.25 percent.

UK CPI inflation fell to 3.2 percent in March (expected 3.1%) signalling that the cost of goods and services is dropping. However, inflation still remains above the 2 percent target inflation rate, indicating there is still work to be done by the BoE.

One member of the Monetary Policy Committee voted for a rate cut in March by 25 basis points, the remaining eight voted for no change. Markets will keep a close eye on the votes from the members of the committee to see their stance on future rate cuts.

It is expected that the Bank of England will cut rates by 0.25 percent in June or August. There will be two CPI inflation releases before the next MPC interest rate decision in June, so both of these releases will be closely monitored.

Pound Sterling has been on the backfoot against the other currencies in the G10 leading up to the interest rate decision today. The dovish stance from the BoE has shown no signs of support for the Pound this week.

The pound sterling continues to fall against the euro in the run-up to Thursday’s Bank of England decision.

A similar weakness was noticed in the days before previous Bank of England decisions. This means that the Bank frequently shows a reluctance to raise interest rates when necessary, but a strong desire to lower rates at the first opportunity.

Markets are now completely pricing in 50 basis points of easing in the UK by year-end, with the first rate decrease likely in August. However, there was no evident reason for the shift. 

Currency-wise, the key FX pairings remained in extremely tight ranges throughout yesterday. Among the modest price activity to date, the lowering of UK market rate forecasts weighed on sterling.

German industrial production data was issued earlier this morning. It indicated that output fell by 0.4% in March (against -0.6% forecast). 

However, the announcement had no influence on the euro in early trading. The macro calendar for the rest of the day remains very sparse on both.

House prices in the UK have shown signs of growth this morning, with the monthly Halifax report showing a rise in house prices at 0.1 percent.

Looking ahead at this week’s economic releases, the UK will post their latest Interest Rate Announcement, which markets are forecasting another month of no change at 5.25 percent. Focus will shift towards the Bank of England Meeting Minutes, where the discussion of any rate cuts this year will be the area of focus.

Following this, the US will announce their Employment reports. Markets are expecting the Unemployment claims to rise to 215k (from 208k last week).

Friday will be the busiest day this week, with a handful of UK data being released. Starting with Gross Domestic Product, markets are forecasting growth of 0.4 percent quarter on quarter. This will be followed by the Industrial Production figures.

On the currency front, the pound has taken a hit against the dollar. This is likely due to the announcement that the FED feel any rate cuts this year are unlikely.

As for the pound to euro rate, a small sell off has been noticed this morning dropping below the yearly average.