The economic calendar is taking a breather today but will return with bang tomorrow. Market participants are looking forward to two major central meetings as the Bank of Japan and especially the European Central Bank take centre stage.
Over the past week and a half, market participants have been forced to reduce their Bank of England rate hike expectations due to the recent soft patch in UK economic data.
After yesterday’s big sell-off, European equities have bounced back and US index futures point to a higher open on Wall Street.
The Bank of England’s Monetary Policy Committee is almost certain to keep interest rates unchanged today despite inflation rising well above its 2% target.
The GBPUSD started the day how it ended yesterday: higher. Speculators were still felling bullish after the stronger UK inflation figures had raised the prospects that the Bank of England may turn hawkish.
Economic data out of the UK released in the last couple of days has been pound-positive, yet the GBPUSD is still holding below the 1.30 handle. But for how long? Given that the positively-correlating EURUSD pair has already broken well above its own corresponding psychological hurdle at 1.10 after a sharp rally, the cable could be playing catch up.
The euro continues to defy gravity. The single currency is up sharply against all of its major rivals, including the pound which took a beating despite stronger UK inflation figures released this morning.
The dollar buying witnessed at the start of the week was driven by rising expectations about a June rate hike following last week’s FOMC statement and a solid US monthly jobs report.
Whilst gold and silver have a relatively close relationship in terms of associated price action, in the last few weeks these relatively close bedfellows have diverged somewhat, with silver continuing the bearish sentiment initiated in mid April, whilst gold pauses and reflects, with neither metal appearing to benefit greatly from recent weakness in the US dollar (UUP, quote).
The dollar has been trending lower ever since the turn of the year. This has been because of the unwinding of the bullish positions that had been accumulated before and after the US election in part as investors began to question how much of the promised fiscal spending President Trump will actually deliver and how this may impact growth and inflation, and in turn interest rates.
