Event risk – Central bank policy meetings
There was somewhat of a mixed tone to proceedings on financial markets yesterday with the main release of note from a sparse calendar yesterday being the flash reading of Eurozone inflation. The headline rate rose unexpectedly from 5% to a new record high of 5.1% (expectations were for a 4.4% rate), which saw the euro gain somewhat modestly. The dollar has remained under some mild downward pressure overall, but the main currency pairs have been confined to relatively tight ranges.
EUR/USD spent some time yesterday above $1.13 and it opens this morning just below this mark. GBP/USD pair is trading at the halfway point of $1.35-1.36 and EUR/GBP has continued to trade in a tight range in and around the halfway mark of the 83-84p band.
Today, the central announcements are very much front and centre of traders attention with the BoE and ECB both set for announcements. The BoE is expected to hike interest rates by 25bps to 0.5% – the first back to back rate hike since 2004. Given that this is somewhat priced in by markets, the impact on sterling may stem from what further guidance the BoE offers on rate hikes going forward as well as their updated forecasts. The ECB continues to advise that rate hikes are unlikely this year and is not anticipated to make any policy changes. However, with the market now pricing in around 20bps of tightening by year end, President Lagarde will face plenty of questions on the Eurozone rate outlook at the press conference.