BoE raise 25bps but GBPUSD lower this morning

Good morning

BoE did raise rates 25bps as expected, seven members voting for the rise and two members voting for no change. GBP did push a little higher initially, then settled down as Bailey made it clear rates had now risen a lot and he sees CPI slipping back into the summer.

GBPUSD had retested the recent highs around 1.2330/40 after the announcement but slipped back and traded a tight 1.2260-1.2290 range overnight. This morning UK retail sales initially sent GBP lower although this was short-lived and soon returned to the upper end of that range, however soon after a bout of USD buying sent GBPUSD down to 1.2240. To prove this is more a USD move, EURUSD also dropped from 1.0835 or so to 1.0770 currently.

Quite what triggered this USD buying remains unclear although I have to say it looks like a bit of traditional ‘risk-off’ sentiment or safe haven buying given we also saw Yen buying around the same time. European banking stocks opening lower doesn’t seem to have helped, nor does some lower than expected PMI data out of Europe.

I mentioned yen just now, worth pointing out that USDJPY is now just around 130.00. I’ve mentioned a few times recently, HSBC look for 120 by year end, the potential for yen to strengthen and this seems to be bearing out and there seems to be interest in getting on downside UDSJPY trades should we see a bit of a rally. I’d looked at AUDJPY back on 17th Feb, at that time it was trading around 92.00 and as i type it sits 86.70, a decent enough move.

Overall after a week with so much potential for risk and volatility, it looks as though we may be heading into the weekend having escaped something that could have been far more serious, for the time being at least !

In other news, I see TikTok is in the headlines. We all know there are reports that China uses the App to spy on us, there is a suggestion now that if it is on a device connected to a wifi network that it can access information on other devices on the same network. If correct, it is difficult to imagine the scale of such a spying program. TikTok deny it, but they would.

Another news item that seems a bit far-fetched but seems to be reality is the idea of ‘15 minutes cities’. Take a look. Oxford is the first place to look at the plans although others could follow. The idea is that the city is split into zones and you are limited as to the number of times you can move from one zone to another. I’ve not fully got my head round the idea, nor the reasons for the plan but I’m sure ‘emissions’ will come into it, no one is against reducing emissions but this does seem to be a worrying concept. Surely a bit early for an April fool….

France seems to have its share of worrying concepts as well. Their recent pension reforms have led to riots across cities in France, some one million people took to the streets yesterday to protest at the idea of raising their retirement age from 62 to 64. Doesn’t sound unreasonable and Macron insists its necessary. I’d imagine it is. Not sure other EU members are too happy about the French taking it easy in their early 60’s.

England just managed to hold on to take victory against Italy yesterday evening, doing their best to throw away a 2-0 lead by conceding a goal and having a player sent off, but in the end hold out for their first win in Italy since 1961. How can we not have beaten them in 62 years! Anyway we did, and well done to Harry Kane for becoming England all-time top goalscorer in the process.

Have a splendid weekend, gloriously sunny here at the moment but not sure it’ll stay that way, the forecast suggests a bit of rain through the weekend and looks as though temperatures will drop on Sunday. No problem, stay indoors and enjoy England take on Ukraine in the Euro qualifying. That’s assuming I’ve got my chores done by then. Mowing the lawn is one of them…wish me luck!

- 09.00 EU S&P manufacturing, services PMI

- 09.30 UK S&P manufacturing, services PMI

- 09.30 ECBs Nagel speaks

- 12.30 US durable goods orders

- 12.30 CAD retail sales

- 13.45 US S&P manufacturing, services PMI

- 16.00 BoEs Mann speaks

Fed raises 25bps, now BoEs turn....

Good morning

Fed raised rates 25bps to 5%, USD initially weakened and hat weakness continued when Powell spoke. He made it clear Fed will do enough to get inflation down to 2% in time and does leave the door open for rate rises if needed but for now the peak rate is lower and one and two year forecasts have also been revised lower (4.3 from 5.1% and 3.1 from 4.1% respectively). The change in wording from ‘ongoing increases will be appropriate’ to ‘some additional policy firming may be appropriate’ showed the change in Fed’s guidance.

During the press conference EURUSD traded up to 1.0910, GBPUSD to 1.2335 and UDSJPY down to 131.00, then down to 1.0855, 1.2265 and 131.65 respectively, and by the end they were pretty much in the middle of those ranges. Overnight we did see some more USD weakness, EURUSD saw a high of 1.0930, GBPUSD reached 1.2340 and USDJPY hit 130.45 but we are now off those levels, currently 1.0895, 1.2310 and 131.10.

There were obviously a lot of questions on the SVB collapse, mostly based around the action the Fed took and whether Powell thinks we are now out of danger of contagion. His words generally offered some comfort to the markets. On the other hand, US Treasury Secretary Yellen said she wasn’t considering a blanket insurance on deposits, the risk-off sentiment that followed seemed to be the driver of the USD weakness overnight.

This morning we have seen SNB raise rates 50bps to 1.5%, CHF traded higher with EURCHF moving from 0.9995 to 0.9940, not quite sure why the knee-jerk reaction given the move was widely expected.

We do have BoE rate announcement at midday. A 25bps rise to 4.25% is the favoured outcome, some are thinking rates could be left unchanged but with a strong CPI print yesterday I think the BoE will have to show they are doing their bit in the fight against inflation. So I’ll go with a 25bps rise but a couple of members voting to keep rates unchanged. If BoE were to surprise with no change, I’d imagine GBP must take a bit of a tumble.

Gold has had a post-FOMC push higher, it reached $1983 or so earlier this morning and a break of the $1985 area must surely open up another test of the $2000/2010 area that we hit earlier in the week. Goldmans have said they see gold target of $2050 in the coming twelve months, but say a move over $2100 would be a challenge unless the Fed started cutting rates.

That’s all for now. Roll on midday and then 7.45pm when England’s football team take on Italy in a repeat of the Euro 2020 final. I don’t believe England have beaten Italy since for over ten years, but despite being away from home the bookies have them as favourites. We’ll see……

- 08.30 SNB rate announcement

- 11.00 CBRT rate announcement

- 12.00 BoE rate announcement

- 12.30 US initial jobless claims

- 14.00 US new home sales

- 15.00 EU consumer confidence

- 15.00 ECBs Lane speaks

- 22.00 AUS S&P services, manufacturing PMI

- 23.30 Japan CPI

- 00.01 UK GfK consumer confidence

- 07.00 UK retail sales

Fed raises rates 25bps, await press conference

So we have had the US rate announcement. They did raise rates 25bps to 5% which had really been the consensus. USD did weaken initially, perhaps helped by lower interest rate projections over one and two years (4.3 from 5.1% and 3.1 from 4.1% respectively).

Currency Pair Before 5 mins after

EURUSD 1.0795 1.0855

GBPUSD 1.2245 1.2300

GBPEUR 1.1340 1.1330

USDJPY 132.55 131.70

As I finish typing this USD is just a little off those post-announcement lows but Powell’s statement and Q&A will be the real key.