EU takes legal action on Northern Ireland
Andrew Bailey, Governor of the Bank of England stated that risks facing the economy have evened up and expects that the economy will be back to its pre-pandemic size around the end of this year. He added that he expects inflation to increase towards 2% in the next few months but doesn’t expect it to shoot up to 4-5% and that the increase in market rates is consistent with the change in the economic outlook. His comments seemed to confirm the speculation that Thursday’s BoE meeting will be cautiously optimistic.
The EU’s decision to launch legal action against unilateral changes to the Northern Ireland protocol took some of the impetus away from the Pound, particularly as it’ll only add trade tensions which are already damaging the economy. The Pound dipped to just above 1.3850 to the Dollar before climbing back to near 1.3900. The Euro pushed down to 1.1630 before drifting back to 1.1650.
This morning Sterling opened lower, near 1.3830 to the Dollar and 1.1627 against the Euro.
The New York Empire manufacturing index strengthened to 17.4 for March from 12.1 previously and above market expectations of 14.5. There was a strong increase in shipments, although the rate of new orders growth slowed slightly. There was also a slight slowdown in employment growth for the month while prices paid increased at a faster rate. Companies were slightly more optimistic over the six-month outlook as expectations of a strong US rebound continued.
The dollar posted net gains early yesterday with a significant advance against commodity currencies and against the Euro dipped to lows at 1.1910. Although US yields edged lower during the day, overall expectations of a very strong economic recovery continued to provide underlying support.
There was an important element of caution and uncertainty ahead of Wednesday’s policy decision with a particular focus on the updated forecasts from the committee members. There was some speculation that the Federal reserve could edge towards a formal move on yield curve control.
The Euro extended its sideways move through the Asian session against the Dollar on Tuesday and remained confined in a narrow trading range, just over the 1.1920 mark.
Concerns over the Eurozone coronavirus developments remain with German healthcare workers calling for tighter restrictions, amid increasing pressures on their intensive care. There were also concerns over increased cases in Italy and France. Germany suspended the use of the AstraZeneca vaccine in the country which caused further concerns over the rate of vaccination in the EU with France and Italy also suspending the vaccine, at least temporarily.
Data to watch
08:30 – USD – Core Retail Sales
08:30 – USD – Retail Sales