GBP Struggles Ahead of BoE Announcements

Today will see the release of a set of UK economic data for March at 09:30 BST, including manufacturing production, industrial production, and trade balance. This will be followed by the Bank of England’s (BoE) interest rate decision and monetary policy minutes at 12:00 BST and the NIESR GDP estimate (Feb to April) at 13:00 BST.

Recent UK economic data has been soft lowering market expectations for a rate hike. The general election will be held on June 8 and, with the Brexit procedure ongoing, the BoE is unlikely to take any actions at least before the election result; therefore, they are likely to keep policies steady until the Brexit negotiation deal has a clear outline.

GBP/USD has rallied approximately 3% since Theresa May’s announcement of a snap general election on April 18th. On Monday May 8th GBP/USD hit a 7-month high of 1.2988. The bulls failed to breach the significant psychological level at 1.3000 since then. Markets seem to be taking a cautious stance ahead of the BoE announcements.

The BoE’s announcement will likely cause a move to GBP and GBP crosses. With a hawkish comment, it will likely cushion GBP/USD. Conversely, with a dovish comment, we will likely see a correction downward.

ECB Governor Draghi stated on Wednesday that “the Eurozone economy is becoming increasingly solid and downside risks have further diminished”. However, it is too early for the ECB to remove QE as inflation pressure continues to be subdued.

Although the Eurozone recovery is sound, with the expectation ECB is not yet going to remove QE, EUR/USD only rebounded around 20 points during the speech, followed by a retracement due to the strengthening of USD. EUR/USD hit a 2-week low of 1.0852 after Draghi’s speech.

German Q1 GDP first reading will be released at 07:00 BST, Friday May 12th. It will be followed by a set of crucial US data for April at 13:30 BST including retail sales, core retail sales, CPI and core CPI.

The German unemployment rate has seen a downtrend since 2009. The global economic recovery helping to boost German exports. German business confidence for April hit a 6-year high indicating German companies regard the economic outlook as optimistic.

German GDP has been oscillating in the range between 1.3% – 3.1% in 2016. The consensus for Q1 GDP is 1.7%, with a better-than-expected reading it will likely provide further support for EUR and the DAX index.

The Dax index hit a record high of 12834.45 on May 5th, lifted by market expectations on Macron’s victory. It has seen a 44.2% surge since February 2016.

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