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.