369289 January 31, 2024 23:49 FXStreet Market News
The Bank of England (BoE) will announce its Interest Rate Decision on Thursday, February 1 at 12:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of nine major banks.
The BoE is widely expected to leave the policy rate at 5.25% for the fourth straight time. Market participants will majorly focus on the interest rate outlook.
The boring part of the meeting should be the MPC voting to keep rates unchanged. What will be more interesting is the vote split, new economic forecasts and possible changes to the guidance. While many underlying assumptions are being updated, the major shift will be the lower Bank Rate path that will likely make it harder to achieve the 2% inflation target. However, we believe this could be partially offset by the softer wage data increasing the MPC’s confidence in the “swathe of wage models” that point to a sharper fall in pay growth than the Bank’s current forecast. Coupled with softer GDP growth and inflation data, it should allow all members of the MPC to vote to keep rates unchanged, although we have low conviction with this latter call.
We expect the BoE to keep the Bank Rate unchanged at 5.25%. Overall, we expect the MPC to deliver a dovish tilt to its guidance coupled with a downward revision to its inflation forecast. We expect EUR/GBP to move modestly higher upon announcement.
The BoE is almost guaranteed to hold Bank Rate unchanged at 5.25%. We look for all nine MPC officials to vote for hold and for the Bank to finally drop its explicit hiking bias.
We expect the central bank to stay on hold for a fourth meeting in a row, keeping the Bank Rate at 5.25%, but signal a soft dovish pivot. Further out, we see the first rate cut in May but acknowledge risks are skewed to a later start.
We expect the BpE to keep rates on hold at 5.25%. One or two known hawks could affirm the tightening bias by dissenting in favour of a hike. December’s rise in headline inflation serves as a useful reminder that caution is warranted and the disinflationary process isn’t going to be smooth. The risk of an inflationary impulse stemming from the Red Sea, the lack of an accurate read on the state of the labour market and the prospect of tax cuts in the run-up to the general election are three factors to exercise patience. However, the wider data flow should eventually persuade the BoE that it could ease its policy stance from the summer onwards. We now see a first cut in September instead of November.
The reality is that defending a ‘higher for longer’ stance on interest rates is getting harder to defend as the inflation backdrop shows signs of improving. Even so, we expect the Bank will still want to tread carefully. Lower market rates will at least offset the recent improvement in inflation and the BoE’s two-year ahead forecast may be a little above 2%. What really matters for markets though is what the Bank does to its policy statement. We suspect it will drop the suggestion that it could raise rates further, but keep the signal that rates need to stay restrictive for an extended period. As for the vote split, we suspect the hawks will finally throw in the towel and stop voting for a rate hike. At the same time, we think it’s probably too early to see the doves voting for a cut. That leads us to expect a unanimous decision to keep rates on hold.
We expect the BoE to keep policy on hold. While the statement is likely to acknowledge the progress on inflation, the MPC will want to see further progress on wage growth before being ready to start cutting rates. Our base case is that rate cuts start in August.
The main aim of the meeting may be to endorse this year’s hawkish re-pricing (which has re-opened a gap between BoE cut pricing (later vs Fed/ECB). Headline dovish developments might be dropping the tightening bias in the policy summary (in line with the global trend and given it looks stale) and/or a dovish shift in the 6-3 vote split. On the other side, the hawkish push back could come via CPI projections. UK inflation is currently undershooting BoE’s forecasts, but another major development is lower front-end re-pricing. The market-implied path for Bank Rate has likely added around 100 bps of additional cuts since November, making it about 200 bps of cuts in total. This will likely open up a wide gap between CPI projections using constant Bank Rate vs the market-implied path, especially at the 3yr horizon. In November, the CPI forecasts using the market-implied path were clustered around 2% (modal and mean), although the 3yr mode was some way below. The new market-implied policy path clearly adds upward pressure, and this could be how the BoE opts to push back.
Full ArticleEconomic data from the UK has been generally soft as of late, but neither consensus economists nor our team view rate cuts as appropriate just yet. GDP readings have been underwhelming, December retail sales data surprised to the downside and inflation has generally followed a downward trend late in 2023. In addition, wage data from November showed cooler than expected growth in weekly earnings. However, inflation and wage data are probably still running too hot for the BoE’s liking, with December core inflation at 5.1% YoY. And while wage growth has come down, the measure is certainly still elevated by historical standards. Related to wage inflation is the services CPI which is also elevated. These factors contribute to our forecast for the BoE to hold rates steady until delivering a 25 bps cut at the June meeting. While this upcoming meeting will likely not bring a change in the policy rate, market participants will closely scrutinize the monetary policy statement for any dovish-leaning tone changes that may signal possibilities for a monetary easing timeline.
369286 January 31, 2024 23:35 FXStreet Market News
The Pound Sterling (GBP) rebounds on Wednesday’s early New York session as the US Automatic Data Processing (ADP) has reported a slowdown in labor demand. US employers hired only 107K workers in January, which were significantly lower than expectations of 145K and the former reading of 158K. This has built pressure on the US Dollar.
Meanwhile, market brace for the US Federal Reserve’s (Fed) monetary policy meeting. Investors see the Fed leaving interest rates unchanged in the range of 5.25%-5.50%, shifting their focus towards any guidance about when the central bank will start cutting interest rates and at which speed. In its last monetary policy meeting, the Fed projected a 75-basis-points (bps) reduction in interest rates in 2024.
The GBP/USD pair trades broadly sideways, but a defined action is expected after the Fed and Bank of England (BoE) announce their first monetary policy decisions of 2024. The BoE is also expected to maintain the status quo for the fourth time in a row. Price pressures in the United Kingdom economy have peaked now, but investors lack confidence about inflation returning to the 2% target in a sustainable manner.
Apart from the Fed decision, market volatility is expected to increase this week as it will be followed by the Institute of Supply Management (ISM) Manufacturing PMI and Nonfarm Payrolls (NFP) data, which will be published on Thursday and Friday, respectively.
Pound Sterling reclaims the round-level resistance of 1.2700 as market sentiment improves after weaker-than-projected US private payrolls data. The Cable is broadly stuck in a tight range between 1.2640-1.2775 during the last two weeks.
A descending triangle formation is visible on the daily timeframe, which indicates that investors are on the sidelines. The horizontal support of the aforementioned chart pattern is plotted from the December 21 low at 1.2612, while the downward-sloping trendline is placed from the December 28 high at 1.2827. The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, which indicates a lackluster move ahead.
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
369284 January 31, 2024 23:33 FXStreet Market News
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
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369283 January 31, 2024 23:21 FXStreet Market News
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
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369282 January 31, 2024 23:21 FXStreet Market News
The US Dollar is set to weaken, while FX markets could experience a lot of volatility going forward, analysts at Nordea say.
We believe that lower rates globally will continue to support economic activity and risk sentiment, lowering the appeal of the USD from a safe-haven standpoint. Moreover, our expectations of more near-term rate cuts in the US relative to the Euro area and others such as Japan, the UK and Norway point towards a weaker USD in the years to come. This does not mean that we see a massive USD weakening ahead.
We expect the US economy to continue to do well on a global perspective. Furthermore, geopolitical challenges and the outcome of the US presidential election could see the USD surprising positively ahead.
Full ArticleIf Trump is elected again, a highly likely outcome as it seems now, the USD should again benefit from its safe-haven status. However, deficit worries are more likely to appear under Trump than Biden. If such worries appear again, it could weaken the USD more than we have pencilled in. Both the outcome of key events ahead and how markets perceive the outcomes are challenging to predict, which will continue to contribute to volatile FX markets.
369280 January 31, 2024 23:12 FXStreet Market News
The Euro stages a comeback against the US Dollar, rising 0.31% amid a busy economic calendar on both sides of the Atlantic. At the time of writing, the EUR/USD trades at 1.0879 after hitting a daily low of 1.0806.
Data from the United States (US) featured the ADP Employment Change report, which came soft at 107K in January, below December’s 158K and forecasts of 145K. Nela Richardson, Chief Economist at ADP, said, “Progress on inflation has brightened the economic picture despite a slowdown in hiring and pay,” adding that “Wages adjusted for inflation have improved over the past six months, and the economy looks like it’s headed toward a soft landing in the U.S. and globally.”
Recently, the Employment Cost Index (ECI) sought by Federal Reserve (Fed) officials as a measure of wage inflation dipped from 1.1% to 0.9% in Q4, meaning the labor market is cooling.
With economic data out of the way, EUR/USD traders’ attention turns to the Federal Reserve’s (Fed) Open Market Committee Meeting (FOMC). Most analysts estimate the Fed will keep rates unchanged at 5.25%-5.50%, though most are eyeing Fed Chairman Jerome Powell’s speech. Win Thin, an analyst at Brown Brothers Harriman, stated, “We believe Powell will take a much more balanced stance at this meeting, especially given how robust the economy remains.”
Across the pond, German Inflation eased to 3.1% YoY in January versus forecasts of 3.2%, fueling speculations that the European Central Bank (ECB) may cut rates sooner than expected as the Eurozone (EU) economy continued to decelerate according to Flash PMIs revealed in January. Other data from Germany witnessed Retail Sales plunging from 0.7% to -1.6% MoM figures, while inflation in France dipped from 3.7% to 3.1%.
The EUR/USD tilted from bearish biased, to neutral-bearish as traders lifted the exchange rate towards the 1.0880s area. Further upside is seen if buyers reclaim 1.0900, with the next key level being the 50-day moving average (DMA) at 1.0916 before challenging 1.1000. On the flip side, if sellers keep the spot price below 1.0900, that could pave the way for a retracement, with their eyes set at the lows of the day at 1.0806.
Full Article369279 January 31, 2024 23:09 Forexlive Latest News Market News
The bond market is really going for it.
US 2-year yields are down 17 basis points to 4.20% and 10s are down 11 bps to 3.94%. The market is back to pricing in 147 bps of rate cuts this year from 130 bps earlier this week.
That’s spilled over into a sharp drop in USD/JPY to 146.59 from 147.80 earlier.
The move kicked off on softer US wage data and a weaker ADP print. More recently, a regional PMI number was below expectations.
Still, these are outsized moves ahead of an FOMC decision.
Some eyes have turned to New York Community Bancorp, whose shares are down 39% after cutting the dividend by two-thirds. They acquired assets from failed Signature Bank last year and Flagstar Bank in 2022. The company said it’s building up capital but there is some angst about community banks again and the KRE regional bank index is down 3.6%.
The market was quick to dismiss early problems as US regional banks last year and might be overreacting in the other direction this year but with banks you never really know how bad it is or what they’re hiding. The problems of mark-to-market Treasury losses remain.
Full Article369278 January 31, 2024 22:49 FXStreet Market News
The Mexican Peso (MXN) collapsed vs. EM peers on the day Trump was elected in 2016. Economists at TD Securities analyze MXN outlook ahead of election noise.
We expect a weaker USD in the medium-term which should help the Mexican Peso, but we expect it to underperform its EM peers like the BRL.
Mexico’s economy is linked to the US outlook given deep trade and financial ties, with 80% of Mexican exports going to the US. MXN’s returns can be explained primarily with US factors with local factors not adding any explanatory power. We expect the US to slow down towards the middle of this year.
Full ArticleUS elections and Mexico elections this year will add noise to the MXN where a possible Trump re-election will bring trade noise for the country and make the MXN underperform peers.
369277 January 31, 2024 22:49 FXStreet Market News
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
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369276 January 31, 2024 22:40 Forexlive Latest News Market News
With AMD, Microsoft and Alphabet announcing yesterday after the close and the market not digesting those earnings well (or pieces of them), the broader indices are lower with the NASDAQ index down by -0.85% leading the downside..
A snapshot of the market currently shows:
The small-cap Russell 2000 is trading down -11.33 points or -0.57% at 1984.90.
AMD shares are down -4.05%, Microsoft shares are now reversed and up 1.06%, Google shares are down -5.5%.
Looking at the US debt market, yields are lower after tamer ECI data:
Crude oil is trading down around $0.50 or -0.59% at $77.35. Gold is up $11.20 or 0.56% at $2048.23 as it reacts to the lower dollars/lower yields. Bitcoin is trading at $42,901.
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