Sterling awaits Bank of England “Super Thursday” announcement

While we would not be overly surprised by a 7-2 or even 5-3 vote, the market probably would be, and we’re likely to see a fairly sizable bounce in the Pound. Sterling continued to trade just of the psychological 1.30 level against the US Dollar yesterday, with investors increasingly bullish towards the currency in anticipation of next month’s General Election.

The US Dollar remained well supported on Wednesday after US President Donald Trump unexpectedly fired FBI director James Comey, the top official investing whether Trump’s advisors colluded with the Russian government ahead of last year’s election.

Meanwhile, President of the European Central Bank Mario Draghi spoke on the topic of monetary policy in the Netherlands. Draghi maintained the fairly dovish tone he has adopted in recent communications, suggesting that he is in no rush to raise interest rates or wind down the ECB’s large scale bond buying programme.

Major currencies in detail

GBP

The Bank of England will undoubtedly steal the show in the UK today. As mentioned previously, the key to the Pound is likely to be the outcome of the interest rate vote. An unchanged 7-1 vote may lead to a weakening in Sterling, depending on the accompanying rhetoric, while a 6-2 is likely to provide good support for the Pound today.

Manufacturing and industrial production numbers will be released this morning ahead of this afternoon’s Bank of England meeting. Both are expected to have remained fairly flat in March amid the generally soft first quarter of growth in the UK.

EUR

The Euro continued to reverse much of its recent gains against the US Dollar as the euphoria surrounding the French election begins to wears off. Attention now turns to ECB monetary policy. While Draghi maintained his dovish tone yesterday, better-than-expected economic news out of the Eurozone has ramped up speculation that the ECB could signal it is close to beginning normalising monetary policy.

European Commission growth forecasts will be released today. Other than that, the Euro will continue to be driven by risk appetite and events elsewhere. German growth and inflation data on Friday could receive some attention this week.

USD

The US Dollar continues to be supported by the increasing likelihood that the Federal Reserve will raise interest rates at its next meeting in June. Federal Reserve speakers in the past few days have been increasingly hawkish. Kansas City Fed President Esther George claimed that “slower Q1 growth is no reason to pause gradual Fed hike”. While Kashkari did not touch on monetary policy, Rosengren described rates as low by historical standards.

Jobless claims this afternoon and a speech from Federal Reserve member Evans are the only events of note in the US today in an otherwise quiet day. Inflation and retail sales data on Friday are the main announcements in the US this week.