Bank of England to break election 'purdah'

• Bank of England to concentrate on low inflation, higher growth in future

• No reason to expect Haldane to have voted for a rate cut

• AUD fights Stevens as inflation beats estimates in Q1

• Italian retail sales and Eurozone consumer confidence due today

Markets regained some poise against the USD yesterday on a quiet session in the world of currency. Once again, traders are obviously aware of some pretty significant event risk on the horizon; Greece’s liquidity issues coming to a head as they bid to pay back the IMF a total of EUR1.59bn by the end of June and the small matter of the UK general election are coming into sight now, and with data unable to cast the die one way or the other, market participants seem happy to sit on their hands for now. That is not to say that we won’t get some movement today.

Today is the first and last time we will hear from the Bank of England on the UK economy while the election campaigns have been running. Since the dissolution of Parliament, the Bank of England has remained in purdah on the state of the UK economy, but today sees the publication of the most recent Bank of England minutes.

Growth vs inflation

Last month, the Bank of England had shifted its emphasis from the strength of output in the UK and the wider economic recovery to those inflation concerns. At the end of the day, the Bank of England is an inflation targeting entity and with very low inflation as a result of oil and food price falls and a strong pound – up around 2% on the year - the emphasis is to hold off on rate rises for longer. Not much has changed in the past month, and I would suspect that the Bank of England’s thoughts and fears are very similar to those in February and the most recent inflation report, leaving market expectations of when the Bank of England will raise interest rates at Q1 2016.

There is also absolutely no reason to suggest that Andy Haldane, the Bank’s Chief Economist, has followed through on his dovish chat of the past months and voted for a rate cut at this meeting. With this over it will be back to election battle. Sigh….

Inflation brings Aussie higher

The battle for the Australian dollar has continued overnight. Governor Stevens may have told the markets that he expected the AUD to move lower in the near future but last night’s inflation measure has made that job a little more difficult. CPI only grew 0.2% on the quarter against an expectation of a 0.1% rise but this has been enough to push AUD 0.7% so far today. Last week’s jobs report also backs up the idea that the economy is doing well enough without additional monetary policy loosening from the Reserve Bank of Australia. Markets still believe that, with a 61% probability, the RBA will cut rates on May 5th.

The day ahead

Away from the obvious highlight of the Bank of England’s minutes we have another quiet session. We are looking for Italian retail sales at 10am to grow as the continued lack of price inflation brings shoppers into stores, while Eurozone consumer confidence (3pm) should also grow. Yesterday’s German ZEW investor confidence reading fell for the first time in six months as respondents noted some fear over the likelihood of Greece regaining any semblance of control over its finances. At the moment however, given its 0.5% growth profile through Q1, we can say that the German economy is in rather fine fettle and a slight slip in confidence is not an indication of some slump in growth prospects for Europe’s largest economy.

Have a great day.