Carney takes centre stage
A rise in oil prices kept Sterling afloat yesterday with Brent Crude rising to three-year highs while the Dollar was subjected to a wider correction against European and commodity currencies (Ruble, Aussie & Canadian Dollars). The Euro also retreated to lows below 1.1450 before finding some support. Investors were still cautious ahead of today’s Bank of England monetary policy decision.
Markets seemed to have fully priced in interest rates being held at current levels at midday today and the Pound avoided any further aggressive selling. After a rate hike was almost fully priced in only a month ago, Sterling has fallen 6.2% against the Dollar and a Reuters poll found economists were almost unanimous in predicting a 7-2 vote to stay at 0.5%.
Sterling looks oversold from a technical standpoint and uncertainty surrounding the statement and likely divisions within the monetary policy committee mean this is far from a foregone conclusion. Should the Bank of England’s message imply that the first quarter slowdown is a temporary lull and that an August rate hike is on the table, there could well be a corrective Sterling rally.
Sterling edged slightly lower in the early hours but the decline in the RICS house-price index to -8 from 0 was all but discounted.
The Dollar has pulled back from its strongest levels this year as investors take profit on three weeks of gains ahead of inflation data set for today. Strong economic growth and further rate hikes by the Federal Reserve have left the Dollar in good shape and as a result, Dollar losses should be limited.
US producer prices increased 0.1% for April compared with expectations of 0.2% with the year-on-year increase held at 2.6% from 3.0% previously. Core prices increased 0.2% on the month for a 2.3% annual increase which dampened inflation concerns to some extent and also hampered the Dollar.
The US sees a hectic day today, with Jobless Claims (expected at 1.778 million, up from the previous 1.756 million), inflation figures, and the Consumer Price Index (CPI), all due at 13:30 BST. Year-on-year US inflation for the month of April is forecast to print at 2.2%, a slight uptick from the previous reading of 2.1%.
There was little to excite the markets yesterday on the economic data front and instead attention was drawn to the ongoing question of the quantitative easing program and Italian political situation. The Euro continued the losses from the beginning of this week against the Pound to close at 1.1429 whilst, against the Dollar, after a choppy trading session, closed at 1.1870.
Reports sprouted that the Italian President, Sergio Mattarella, had given the Lega (regionalist political party) and 5-Star parties (populist political party) 24 hours to settle their differences and form a coalition government. If they fail this task and no deal can be reached, President Mattarella will revert to his plan to impose a technocrat administration whereby elected officials appoint experts and professionals to control individual government roles and recommend legislation.
Data to Watch:
02:10 NZD RBNZ Governor Orr Speech
09:00 EUR Economic Bulletin
09:30 GBP Manufacturing Production (YoY) (Mar)
09:30 GBP Manufacturing Production (MoM) (Mar)
09:30 GBP Industrial Production (MoM) (Mar)
12:00 GBP BoE Asset Purchase Facility
12:00 GBP BoE Interest Rate Decision
12:00 GBP Monetary Policy Summary
12:00 GBP Bank of England Quarterly Inflation Report
12:00 GBP BOE MPC Vote Unchanged
12:00 GBP BOE MPC Vote Cut
12:00 GBP BOE MPC Vote Hike
12:00 GBP Bank of England Minutes
12:30 GBP BOE’s Governor Carney speech
13:30 USD Continuing Jobless Claims (Apr 27)
13:30 USD Initial Jobless Claims (May 4)
13:30 USD Consumer Price Index (YoY) (Apr)
13:30 USD Consumer Price Index Ex Food & Energy (YoY) (Apr)
13:30 USD Consumer Price Index Ex Food & Energy (MoM) (Apr)
13:30 USD Consumer Price Index (MoM) (Apr)
13:30 USD Consumer Price Index Core s.a (Apr)
19:00 USD Monthly Budget Statement (Apr)