Pound falls after BoE decision

Investors who were expecting more hawks to join the policy discussion were left empty-handed at the Bank of England meeting today.

Policymakers voted unanimously to keep interest rates unchanged at their current record low of 0.1% and a majority voted to maintain asset purchases at the current level of £895 billion. Andy Haldane was the only dissenter who was looking at tapering bond purchases but he departs from the bank at the end of June.

Despite officials revising up their growth forecast for this quarter, the overall tone of the meeting sounding cautious with the central bank in no rush to raise interest rates. Economic growth in Q2 was revised up by around 1.5% since the May report but output in June is expected to be around 2.5% below its pre-Covid 2019 fourth-quarter level. Inflation is expected to exceed 3% in the months ahead but the BoE sees it as “transitory” and should not affect monetary policy.

The MPC may not want to run the risk of acting too soon, especially after the committee also continued to emphasise that it should “lean strongly against downside risks” to the economic outlook. Indeed, the renewed rise in Covid-19 cases, uncertainty surrounding the Delta plus variant, and the delay to ending lockdown restrictions remain on the central bank's list of concerns.

Pound bulls were disappointed by the BoE and this was reflected across the G10 space. Sterling has weakened against every single major currency today, falling as much as 0.5% against the Euro and 0.7% against the Swedish Krona. Regarding GBPUSD, the currency remains under pressure on the daily charts with resistance at 1.40. A solid daily close back below 1.39, which is also below the 100-day Simple Moving Average, could signal a decline back towards the weekly lows around 1.3786. Alternatively, a strong move back above 1.40 could open the doors towards 1.4080 and 1.4133 respectively.

Dollar slips as jobless claims barely fall

The dollar slipped on Thursday afternoon after the Labour Department reported that US jobless claims fell 411,000 last week compared to market expectations of 380,000. This was effectively unchanged from the prior week’s 412,000 claims.  Given how the Federal Reserve has made it clear to markets that employment is a key component in its mandate, the disappointing jobless claims could add to the noise and mixed signals from Federal Reserve officials on the timing of tightening monetary policy.

Speaking of Federal Reserve officials, Philadelphia Fed President Patrick Harker, Atlanta Fed President Raphael Bostic, St. Louis Fed President James Bullard and New York Fed President John Williams will all be under the spotlight today.