Sterling slides after BoE decision, dollar attempts to recover.
The Bank of England increased interest rates by 0.25% to 0.75% which was in line with consensus forecasts. There was, however, an 8-1 vote for the increase with Cunliffe dissenting and calling for no change. There were, therefore, no calls for a 0.50% hike at this meeting which was more dovish than expected.
The central bank warned that inflation was liable to increase further and there was the risk of a fresh spike higher in the fourth quarter of 2022 as retail energy prices are increased again. The bank, however, was also uneasy over the growth outlook with a squeeze on incomes having an important impact. The bank stated that interest rates could increase again, although with less conviction than in previous meetings.
Overall market expectations of future rate hikes were downgraded following the policy statement with rates expected to be below 2.00% at the end of 2022. The shift in expectations triggered sharp Sterling losses.
The latest Western military assessments of the Ukraine conflict continue to indicate that Russian forces are making little or no headway.
Russia, however, launched a missile attack against the Western city of Lviv which caused further concerns and there were no major developments surrounding peace talks.
There were important concerns over the geo-political tensions and risk of a wider impact, especially with the US warning China not to provide military support to Russia.
US President Biden and Chinese counterpart Xi are due to speak on Friday with the briefings watched closely.
After sharp losses earlier in the week, oil prices posted strong gains on Thursday with fresh concerns over global supply shortages given the sharp dip in Russian crude on global markets.
In this context, there were fresh concerns over the impact on global inflation trends.
A further surge in oil prices hampered the Euro while commodity currencies advanced.
Equity markets posted further gains on Thursday, but US futures edged lower on Friday and markets are likely to be wary over potential Ukraine developments during the weekend which is likely to lead to a greater mood of caution.
The Philadelphia Fed manufacturing index strengthened to 27.4 for March from 16.0 previously and comfortably above market expectations of 15.0. There were much stronger readings for new orders and shipments and employment also increased at a faster rate on the month with the employment index at a record high.
There was a sharp increase in the prices paid component to the highest rate since June 1979 while the prices received index also strengthened on the month.
The dollar weakened following the Federal Reserve interest rate increase on Wednesday and the US currency posted further losses on Thursday despite expectations of a series of rate increases.
There were further concerns that the Fed was behind the curve and that rate hikes are priced in, but the US currency regained some ground on Friday.
The dollar was unable to regain ground on Thursday and posted further losses despite the broadly hawkish Federal Reserve policy statement and press conference. The US currency did regain some territory on Friday as energy prices surged.
Eurozone yields edged higher which underpinned the Euro to some extent. EUR/USD strengthened to highs around 1.1130 at the European close but retreated to below 1.1100 on Friday and bear 1.1080.
The Bank of Japan made no policy changes following the latest meeting. The yen was mixed with losses against the Euro. USD/JPY lost ground amid wider losses and traded around 118.80 on Friday.
Sterling declined sharply after a less hawkish than expected BoE policy statement. GBP/USD did recover from lows below 1.3100 and settled around 1.3150 on Friday. GBP/EUR posted sharp losses but recovered slightly to close around 1.1850.
Commodity currencies were boosted by US dollar weakness and further upward pressure on prices. AUD/USD strengthened to 10-day highs above 0.7400 before correcting slightly. USD/CAD also retreated to 10-day lows around 1.2600 before edging higher.
|10:00||Euro-Zone Trade Balance(JAN)||-4.6B|
|13:30||CAD Retail Sales Ex Autos (M/M)(JAN)||-2.00%||-2.50%|
|13:30||CAD Retail Sales (M/M)(FEB)||-2.10%||-1.80%|
|13:30||CAD Foreign Securities Purchase(JAN)||37.56B|
|13:30||CAD New Housing Price Index (M/M)||0.90%|
|14:00||USD Existing Home Sales(FEB)||6.10M||6.50M|
|15:00||USD Existing Home Sales Change(FEB)||-1.00%||6.70%|