BoE hikes 25 basis points.

The Bank of England increased interest rates by 25 basis points to 4.50% at the latest policy meeting which was in line with consensus forecasts. The 7-2 vote for the move as Tenreyro and Dhingra again voted against any rate hike also met market expectations.

The bank raised its growth forecasts with a substantial impact from the sharp decline in gas prices. The bank now expects positive growth in 2023 and 2024 with no quarters of negative growth. Overall, growth forecasts were revised higher by the largest extent since the bank gained independence in 1997.

The bank also raised inflation forecasts with an important impact from the strong increase in food prices.

Bank Governor Bailey refused to give any significant guidance and insisted that the next policy move would be data dependent.

Bailey’s later comments were more dovish with reported comments that the bank is approaching the point when we should be able to pause rate hikes. .

US producer prices increased 0.2% for April compared with consensus forecasts of 0.3% with the year-on-year rate retreating to 2.3% from 2.7%, marginally below expectations of 2.4% and the lowest reading since January 2021. Core prices increased 0.2% with a slowdown in the annual rate to 3.2% from 3.4%.

US initial jobless claims increased to 264,000 in the latest week from 242,000 the previous week. This was above consensus forecasts of 245,000 and the highest reading since January 2022.

Continuing claims edged higher to 1.82mn from 1.80mn, but slightly below market expectations.

The latest data from China reported an increased in new loans of CNY719bn for April from CNY3,890bn the previous month and substantially below consensus forecasts of CNY1400bn. The data triggered fresh reservations over the Chinese growth outlook.

The monthly UK data recorded a 0.3% GDP decline for march compared with expectations of no change. There was, however, a marginal 0.1% increase for the first quarter which was in line with expectations.

Risk appetite was fragile during Thursday with reservations over the global growth outlook and the US debt ceiling issue which remains unresolved.

There were also fresh reservations over the US banking sector. The dollar managed to secure defensive support on the day with commodity currencies under pressure.  US equities did recover from intra-day lows.

The Euro dipped sharply after Thursday’s European open with a weaker tone in equities. The dollar briefly dipped lower after the US data. The US currency, however, drew defensive support as risk appetite stumbled again. EUR/USD dipped to lows at 1.0900 before trading around 1.0925 on Friday.

The yen gained net support after the US data and weaker equities. USD/JPY dipped to lows near 133.75 before a recovery to 134.45 amid a wider US recovery. USD/JPY traded above 134.50 on Friday at 134.70.

The Swiss franc overall was little changed on the day with a firm tone. EUR/CHF settled around 0.9750 with USD/CHF net gains to just above 0.8950 before a retreat to 0.8930.

Sterling posted initial gains on the BoE decision, but failed to hold gains as risk appetite deteriorated and there was less hawkish rhetoric from Governor Bailey. From 1.2640 highs, GBP/USD dipped sharply to 1.2500 before settling around 1.2520. Sterling edged lower after the UK GDP data with GBP/USD just above 1.2500.

Commodity currencies dipped sharply as equities moved lower and the US dollar posted gains. AUD/USD slumped to below the 0.6700 level and traded just below this level on Friday. USD/CAD strengthened to just below 1.3500 and settled around 1.3490.

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