Sterling Falls on BoE Hold

Sterling fell on the BoE meeting. Key today: ECB President Draghi's speech and Canadian labour market data.

Previous Day's Market Highlights

The Bank of England kept interest rates on hold at 0.5% yesterday as was widely expected. While market expectations of a May hike had been as high as 90% at the start of April, they had fallen to below 20% by the time of the meeting. The BoE downgraded growth forecasts for this year but said that Q1 GDP could see a revision higher, and continued to emphasise that, while interest rates may be headed higher, any hikes will be “limited” and “gradual”. The vote was unchanged at 7-2 to hold.
 
The lack of any changes in the vote or more hawkish signalling of an upcoming rate hike disappointed some investors, and the pound pared earlier gains to hit new lows against the dollar since January, meeting support around 1.3460 but failing to break the January low of 1.3458. Sterling gave up 1.14 against the euro to test the lower end of the 1.13-1.14 band.
 
Against the commodity currencies, sterling suffered losses as well. The pound fell below 1.80 against the Aussie for the first time this week. It reversed earlier gains against the kiwi made after the RBNZ struck a cautious tone on raising rates, and it hit new lows against the Canadian dollar since mid-January.
 
Earlier in the day, the UK’s production data were mixed. The dollar suffered losses as CPIdata disappointed expectations, enabling euro-dollar to regain the 1.19 handle.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1356 1.1600 1.1302 2.57%
GBP/USD 1.3511 1.4376 1.3460 6.37%
EUR/USD 1.1897 1.2414 1.1822 4.77%
GBP/AUD 1.7924 1.8478 1.7909 3.08%
GBP/NZD 1.9392 1.9755 1.9171 2.96%
GBP/CAD 1.7246 1.8039 1.7224 4.52%

Today's Market Highlights

With a quiet calendar from the UK today, investors will continue to digest yesterday’s Bank of England meeting.
 
Canadian labour market data (13:30 BST) could put pressure on the loonie with Net Employment Change forecast to soften and the Unemployment Rate to remain unchanged. The US’s Michigan Consumer Sentiment Index is projected to fall slightly further (15:00).
 
ECB President Draghi is speaking at the European University Institute’s 8th State of the Union (14:15). The theme of the event is Solidarity in Europe and investors will watch Draghi’s comments for any guidance on monetary policy, particularly any comments on inflation or economic growth. Any such signals could see some euro movement.

Today's Economic Calendar

Time Currency Release Consensus Previous
13:30 CAD Net Change in Employment (Apr) 17.4K 32.3K
13:30 CAD Participation Rate (Apr) 65.5% 65.5%
14:15 EUR ECB President Draghi Speaks
15:00 USD Preliminary Michigan Consumer Sentiment Index (May) 98.5 98.8

Caxton