• BOE raises bank rate by 25 bps to 4.50%, as expected
• What’s the takeaway from the BOE decision?
• What now after the US CPI data yesterday?
• Yellen: US default would produce economic, financial ‚catastrophe‘
• ECB’s Nagel reaffirms sticking to meeting-by-meeting approach
• ECB’s de Cos: We are now closer to the final cycle of rate hikes
• China April M2 money supply +12.4% vs +12.5% y/y expected

Markets:

• JPY leads, AUD lags on the day
• European equities mixed; S&P 500 futures down 0.1%
• US 10-year yields down 4 bps to 3.396%
• Gold up 0.4% to $2,037.13
• WTI crude flat at $72.57
• Bitcoin down 1.5% to $27,445

All eyes were on the BOE today and they delivered as expected, raising the bank rate by 25 bps without much of a hiccup.

There were some hawkish elements to the decision though, as they bumped up projections on inflation and also GDP forecasts. At the same time, the central bank is now not looking for a UK recession. As such, that helped to give the pound a minor lift in the aftermath of the decision.

GBP/USD sank earlier from 1.2620 to 1.2570 on a stronger dollar, before recovering slightly to 1.2600 now.

The dollar in general held firmer throughout the session despite some early resilience in equities, with EUR/USD falling from 1.0960 to 1.0920 and USD/CHF moving up from 0.8890 to 0.8950 before easing slightly.

The commodity currencies are the laggards with AUD/USD down 0.7% to 0.6730, after being pushed back by its 100-day moving average near 0.6800 once again.

The yen was somewhat steadier, although the gains were helped out by lower Treasury yields following the BOE decision. USD/JPY moved up to a high of 134.85 during the session but is now down 0.1% to 134.20 on the day.

There’s still a lot of pushing and pulling going on in broader markets and so far the not-so-surprising key risk events this week are not really offering much to work with in general.

This article was written by Justin Low at www.forexlive.com.

Let’s try to keep this short and simple.

• There was a bump to the inflation forecasts and more notably, a big bump to GDP forecasts as well as the BOE abandoning their call for a UK recession
• The forward guidance reads more or less the same i.e. the door is still open to tighten further should inflation pressures require the need to do so
• The decision in itself was very much expected, that being a 25 bps rate hike with the same two dissenters again i.e. Dhingra and Tenreyro

So, where does that leave us?

Essentially, it shouldn’t be enough to convince markets to go above 5.00% pricing in the terminal rate. And with traders already having priced in a peak relatively close to that, the hawkish elements in today’s statement are not likely to provide too much of a boost to the pound.

We have seen GBP/USD move up from 1.2575 to 1.2600 now but to get past its one-year highs around 1.2660-66, I reckon it might take more and also a little bit of help from the dollar side considering today’s price action.

In terms of rates pricing, we have seen a minor bump higher in the OIS curve but not as hawkish as what we saw after the UK CPI data last month:

This article was written by Justin Low at www.forexlive.com.

• Prior 4.25%
• Bank rate vote 7-2 vs 7-2 expected (Dhingra, Tenreyro voted to keep rates unchanged)
• If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required
• Risks to inflation forecasts skewed significantly to the upside
• Pay growth could plateau at rates inconsistent with inflation target
• Estimates „flat“ GDP for Q1 and Q2 (March forecast was -0.1% q/q for Q1)
• Full statement

Of note, the BOE has revised their projections to show a higher path for inflation as well as a big bump in terms of GDP forecast. That’s a bullish take at least, with the rest of the decision and forward guidance being consistent with what is expected and what we have seen from the central bank previously.

GBP/USD has caught a jump from 1.2575 to a high of 1.2615 before hugging closer to the 1.2600 mark now. As much as there are bullish elements to the report, I don’t see this skewing the market pricing all too much as a 5.00% peak in the bank rate has already been nearly priced in beforehand.

This article was written by Justin Low at www.forexlive.com.

It is reported that China has asked banks to lower their rate ceilings on some retail and corporate deposits, starting from 15 May. And that the big four state-owned banks are to lower their rate ceilings by 30 bps, with some other financial institutions even called to cut by 50 bps.

If you recall, this builds on the story from two weeks ago here. This is largely to encourage more spending and investing activity in the country as the government is trying to prop up economic activity, instead of encouraging savings.

This article was written by Justin Low at www.forexlive.com.

• Prior -1.2%
• Market index 227.8 vs 214.4 prior
• Purchase index 173.7 vs 165.8 prior
• Refinance index 507.1 vs 461.2 prior
• 30-year mortgage rate 6.48% vs 6.50% prior

That’s a bit of a bounce in mortgage activity in the past week, with both purchases and refinancing activity rebounding. That said, the levels are still rather languishing after the drop since last year and with higher rates still prevalent, it might take a while for housing market sentiment to improve.

This article was written by Justin Low at www.forexlive.com.

On the daily chart below for
XAUUSD, we can see that after the overnight flash spike the last week into the
record 2076 high, the price got rejected and extended the fall as the NFP report surprised to the upside.
The buyers leant on the red long period moving
average and the 2000 psychological
round level to push again to the upside and unwind the NFP
spike.

Gold has been supported by a fall
in real yields, a weak USD and the US debt ceiling drama, but the US CPI report
today may kick in a deeper pullback. In fact, the market is expecting the Fed
to pause in June and start cutting already in September, but a hot CPI should
change those expectations. If we were to get a pullback, the likely target
would be the 50% Fibonacci
retracement level and the trendline.

XAUUSD technical analysis

On the 4 hour chart below, we can
see that the whole upward move from the 1930 level to the 2076 high is diverging with the MACD. This is generally a sign of
weakening momentum often followed by pullbacks or reversals. If the CPI comes
in hot, we should see a deeper pullback towards the 1930 level where the buyers
will be waiting leaning on the support zone defined by the trendline, the 50%
Fibonacci retracement level and the previous swing level.

On the 1 hour chart below, we can
see more closely the recent price action after the NFP report. The downward
spike was completely erased yesterday with the price getting rejected exactly
at the NFP release time and the 50% Fibonacci retracement level. The market has
been printing higher highs and higher lows soon after the report and the last
higher low is at the 2022 level.

If the price breaks below that
level, the bias will switch again to the downside and the sellers would pile in
and push the price towards a new lower low targeting the 1930 level. The
buyers, on the other hand, will want to see the price breaking above the 2040
level to jump onboard and ride the likely rally towards the 2076 high.

This article was written by ForexLive at www.forexlive.com.

On the daily chart below for
USDCHF, we can see that the pair has been ranging for a month now although it
keeps a bearish bias as the moving
averages act as resistance for the trend. USD/CHF had a pretty solid run to the
downside as the US regional banking crisis and the expectations for rate cuts
weakened the USD a lot.

The market now is watching how
fast inflation is expected to fall to the target as the fear of persistently
high inflation is still there. In fact, across all the other markets we’ve seen
a choppy price action trading into today’s US CPI report. Hot data won’t be
taken well, and the USD is expected to strengthen as the market should reprice
interest rates expectations.

USDCHF
technical analysis

On the 4 hour chart below, we can
see more closely the range between the 0.8858 support and the 0.9000 resistance. The moving averages have
crossed to the upside, so the bias at the moment is bullish and suggests that
we may get back to the top of the range, but of course this will be decided by
the data. The buyers are leaning against the red long period moving average as
it offered support in the past weeks and was pretty accurate in determining the
short-term trend within the range.

On the 1 hour chart below, we can
see that the price action is choppy and confusing. There’s pretty much nothing
we can glean from this chart. We have only the top and the bottom of the range
as clear levels. That’s why today it’s all about the CPI with a hot reading
expected to boost the USD and a cold one to weaken it. Watch out!

This article was written by ForexLive at www.forexlive.com.

After the recent rally in cable, Deutsche Bank says that it is taking profit on its pound position against the dollar. Adding that they see a potential „dovish surprise“ for the quid at this week’s BOE meeting.

„Having been bullish on the pound since the start of the year, we no longer think the pound presents attractive risk-reward in the short-term. A lot of the domestic good news for the UK is now in the price.“

I’m guessing the dovish risks are more to do with the rates pricing here. Markets are expecting at least one more rate hike after the one this week but a further hike to bring the bank rate to 5.00% remains questionable at this stage. So, if there is some affirmation there by policymakers then that could result in a bit of a dovish spin for the pound.

/GBP

This article was written by Justin Low at www.forexlive.com.

China and Germany have agreed to step up coordination in the multilateral field.

Underscores the importance of Germany-China ties.

To undermine the one-China principle is to undermine the international system with the United Nations at its core.

On the Ukraine crisis, creating conditions for a political solution is the way out of the crisis.

This article was written by Ryan Paisey at www.forexlive.com.

Key Points:

European bourses & US futures are softer as the region struggles for a foothold after mixed APAC trade and ahead of Fed/debt ceiling events

USD picks up against peers ex-JPY as yields ease from best while AUD retreats after Chinese imports declined unexpectedly

Yellen reiterates the Treasury could run out of cash as soon as June 1st, with the Bipartisan centre expecting the x-date between early-June to August

Fixed benchmarks have been choppy but are firmer overall with Bunds bolstered on strong supply and USTs near highs

Commodities are, broadly speaking, pressured as the USD picks up and after Chinese trade data

Looking ahead, highlights include ECB’s Lane & Schnabel, Fed’s Williams & Jefferson, Biden meeting Congressional Leaders. Supply from the US, Earnings from Airbnb & Occidental Petroleum.

This article was written by Ryan Paisey at www.forexlive.com.