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Can hawks lift us over 1.3000?

Can hawks lift us over 1.3000?

There were no significant domestic developments yesterday but the Pound gained some net support from the sharp gain in oil prices and a firmer tone in commodity prices. There was also evidence of further short covering on any significant retreat.

Super Thursday is upon us again and there are strong expectations that the Bank of England will hold interest rates at 0.25%. Investor attention will be focused on the latest growth and inflation forecasts as well as the summary and minutes. Hawkish rhetoric and Kristin Forbes maintaining her call for higher rates will be Sterling positive, although political considerations may discourage open calls for higher rates at this meeting. Mark Carney suggesting that the bank is becoming less tolerant to high inflation would likely fuel a push above 1.3000 against the Dollar.

Sterling consolidated just below 1.2950 against the Dollar with resistance just below 1.3000. The Euro failed to convincingly break below the 1.1900 level yesterday despite a few attempts.


Over the last trading day, we have seen an ongoing USD-positive environment, with the US Dollar Index staging quite a sharp rebound from Monday’s fresh yearly lows. Markets ignored the reports of the director of the FBI, James Corney, being fired by the US President Donald Trump, and continued buying into the recent US Dollar strength amid a rally in treasury yields, as a June Fed rate hike almost looks imminent.

The probability of the June hike is over 80%, while the probability of the September hike is nearing 40%, according to Bloomberg. Data wise in the US docket, the usual report on the labour market is due along with Producer Prices and speeches by Chicago Fed Charles Evans (voter, centrist) and New York Fed William Dudley (permanent voter, centrist).


European Central Bank (ECB) President Draghi’s dovish comments delivered yesterday continue to weigh down on the Euro. Draghi said it’s too early to cheer on the bloc’s economic recovery, suggesting that he is in no hurry to raise rates or resort to tapering. He said that it is too early for the ECB to declare victory in its quest to boost inflation despite signs the bloc’s economic recovery is strengthening.

He is in no rush to raise interest rates or wind down the ECB’s 60 billion Euro per month bond-buying programme. Music to the ears of Greeks, Cypriots and other struggling E.U. members but a cold shower of disappointment for Frankfurt.

The Euro continued to trade lower, driven by profit taking following Macron’s French election victory. Today, the Euro will eagerly await the ECB economic bulletin and EU economic forecasts for fresh impetus amid a lack of economic releases from Euroland.

Data to Watch:
7:00am EUR GER Wholesale Price Index (YoY) (MoM) (Apr). 9:00am EUR Economic Bulletin Report. 9:30am GBP Manufacturing Production (YoY) (MoM) (Mar), Industrial Production (YoY) (MoM) (Mar). 12:00am GBP BofE Interest Rate Decision, BofE Asset Purchase Facility, Monetary Policy Summary Report, BofE Quarterly Inflation Report, BofE MPC Vote Unchanged, BofE MPC Vote Cut, BofE MPC Hike, BofE Minutes. 1:00pm NIESR GDP Estimate (3M) (Apr). 1:30pm USD Initial Jobless Claims (May 5).

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