MPC keep interest rates on hold as probability of a cut jumps to 20%

STERLING

The Bank of England kept rates on hold on Thursday via a 9-0 vote but cut growth forecasts which initially weighed on the pound, with the market now pricing in a 20% chance of an interest rate cut this year. Still, Sterling recovered into the weekend and has been trading at a two week high today at around 1.2760 with investors now looking ahead to the inflation report hearings tomorrow.

US DOLLAR

The Dollar Index has inched lower overnight, matching Friday’s three-month low at 96.09. The dovish shift at the Federal Open Market Committee (FOMC) continues to weigh on the Dollar while Friday’s PMI miss only added to the pressure. Investors will get another look at the health of the US economy on Thursday with the release of US Q1 GDP data although attention will likely be on the plethora of FOMC speakers dotted throughout this week.

EURO

The Euro finished Friday as one of the best performers among the G10’s, supported by stronger-than-expected French and German PMI data. EUR/USD has extended to a fresh three-month high overnight at 1.1396. The single currency suffered some losses earlier in the week after ECB President Mario Draghi mentioned the possibility of further rate cut.

Looking ahead, Euro Zone confidence indicators are due for release tomorrow.

JAPANESE YEN

USD/JPY hit a six-month low on Friday at 107.05 as the Yen benefitted from safe-haven demand. There were few surprises from the Bank of Japan who pledged to continue powerful monetary easing in their latest policy statement. Manufacturing PMI also disappointed on Friday but again was largely ignored.

Unemployment data, industrial production and Tokyo CPI are due on Friday.

SWISS FRANC

Domestic impulses were again limited for the Swiss Franc last week although EUR/CHF did briefly drop below the 1.11 handle before recovering into the weekend.

The Swiss ZEW survey is due tomorrow while the KOF indicator is out on Friday.

AUSTRALIAN DOLLAR

The Australian Dollar has gained overnight, supported by remarks made by RBA Governor Lowe who said it would be legitimate to question the effectiveness of global monetary policy easing to boost economic growth. AUD/USD topped out at a high of 0.6955, its best level since June 12th.

RBA Assistant Governor Bullock speaks today ahead of private sector credit on Friday. Trade headlines will also be in focus after Chinese state media warned over the weekend that they would fight the trade war to the end.

NEW ZEALAND DOLLAR

The Reserve Bank of New Zealand meet tomorrow and are widely expected to leave the OCR on hold although could align themselves with market expectations by signalling another cut is in the pipeline.

CANADIAN DOLLAR

USD/CAD hit a four-month low of 1.3152 on Thursday as the Canadian Dollar benefited from rising oil prices heading into the weekend. It has been a similar story overnight as oil jumped on reports that US President Trump will add major sanctions on Iran yesterday.

Friday’s April GDP data is the main data focus for the week.

NORWEGIAN KRONE

The Norges Bank hiked rates on Thursday as was widely expected but also signaled further increases were likely this year. The Krone subsequently rallied with EUR/NOK diving to a two-month low of 9.6503.