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Central banks were in the spotlight in European trading today and they at least kept things interesting despite the decisions being as „expected“.
The SNB was the first up to bat and they decided to cut interest rates once again. The Swiss franc slipped in the aftermath though, with market expectations arguably leaning closer towards a 50-50 rather than a done deal.
But adding to that, SNB chairman Jordan was explicit in outlining that the franc has „significantly appreciated“ in the past weeks. He also steered clear of mentioning what he did in May, that being „a weaker franc is the main source of inflation“. That suggests the central bank is comfortable with present levels in the currency.
USD/CHF jumped from around 0.8840 to 0.8900 and is holding thereabouts now.
Then, we had the BOE decision which played out more or less as expected. However, the central bank dropped a couple of subtle dovish hints which might potentially draw an August rate cut back into the picture. I still think the bar for that is extremely high but there will be plenty of watchful eyes on the next UK CPI report on 17 July in any case.
The pound fell amid those considerations, with GBP/USD easing from 1.2705 to 1.2680 levels currently.
Looking to FX as a whole, the dollar continues to keep steadier on the week. EUR/USD is down 0.2% to 1.0720 while USD/JPY continues to creep higher in a push from 158.00 to 158.40 on the day.
In other markets, equities continue to keep up some optimism on the week awaiting the return of US markets later. European indices saw a bit of a setback yesterday but are seen bouncing back today.
This article was written by Justin Low at www.forexlive.com.
There were a couple of dovish hints, subtle of course, put out by the BOE in their rate statement today. Let’s dive straight into it.
Firstly, they introduced this passage to the forward guidance:
„As part of the August forecast round, members of the Committee will consider all of the information available and how this affects the assessment that the risks from inflation persistence are receding.“
Secondly, there are some policymakers looking to already dismiss the ever so stubborn services inflation. The minutes revealed the following:
„The upside news in services price inflation relative to the May Report did not alter significantly the disinflationary trajectory that the economy was on. This view was supported by evidence that the recent strength in services inflation included regulated and indexed components of the basket, and volatile components. Such factors would not push up medium-term inflation.“
And perhaps more importantly, the BOE says that the decision today was „finely balanced“ for some policymakers given the above. The BBC is reporting this applies to three members, which voted for holding rates instead. If you put them on the same side with Dhingra and Ramsden, we might be staring at a 2-0-5 vote in favour of cutting rates in the near future.
In terms of BOE pricing, not much has changed though. The odds for an August rate cut were ~34% coming into the meeting and they are ~43% now. As for total rate cuts this year, traders are now seeing ~49 bps worth of rate cuts as opposed to ~45 bps before.
Well, mark your calendars. The next UK CPI report on 17 July is going to be a big one in determining whether August comes into play.
This article was written by Justin Low at www.forexlive.com.