After struggling to make a decisive break above 11.50 area earlier in the day, the USD/JPY pair gained traction in the last couple of hours and rose to a fresh session high of 110.92. As of writing, the pair was trading at 110.86, adding 0.14% on a daily basis.
The 10-year T-bond yield, which fell to its lowest level since January 2018 by losing more than 1% in the day after the FOMC in its dot plot signalled that it didn’t expect any rate hikes in 2019 and only one hike in 2020, staged a strong recovery and turned positive to provide a boost to the positively-correlated USD/JPY pair. Moreover, following a negative start to the day, major equity indexes in the U.S. turned north to reflect improved market sentiment in the session. As of writing, both the Dow Jones Industrial Average and the S&P 500 were up around 0.6% on the day.
In the meantime, the US Dollar Index erased all of the losses that it suffered on the Fed’s dovish shift and supported the pair’s recent upsurge. Earlier today, the Philly Fed reported that its regional manufacturing index rose to 13.7 in March to surpass the market expectation of 4.5 by a wide margin to help greenback push higher. At the moment, the DXY is up 0.5% on the day at 96.40.
Key technical levels
Citing two people familiar with discussions, CNBC reported that President Donald Trump was pushing negotiators to get China to commit to larger purchases of U.S. goods.
After pointing out that China had offered to purchase up to $1.2 trillion worth of agriculture, aircraft, and energy products over a 6-year period, “But Trump has long wanted a number “double or triple” China’s $1.2 trillion proposal, these people said, requesting anonymity due to the sensitive nature of the discussions. He renewed his desire for a larger purchase deal in recent weeks, they said, following data that revealed the U.S.-China trade gap was widening,” wrote CNBC’s Kayla Tausche.
EUR/USD daily chart
EUR/USD 4-hour chart
EUR/USD 30-minute chart
Additional key levels
European Commission President Jean-Claude Juncker recently crossed the wires repeating that British Prime Minister needed to get her Brexit deal through parliament and said that they will organise a meeting next week if she fails to do so.
On other Brexit-related headlines, French President Macron stated that they will head to a no-deal Brexit if parliament rejects PM May’s deal next week and added that they must respect the choice of the British people.
GBP/USD daily chart
GBP/USD 4-hour chart
GBP/USD 30-minute chart
Additional key levels
James Smith, developed markets economist at ING, suggests that today, in its March meeting, the BoE has kept its cards close to its chest when it comes to the prospect of rate rises, simply saying that further tightening may be required.
“Importantly though, we think it’s too early to completely rule out a rate hike this year – although of course, this depends almost solely on Brexit.”
“The Bank’s forecast of excess demand at the tail-end of its forecast period implies that more tightening could be needed than currently priced into markets.”
“You could reasonably argue that with the Federal Reserve and the ECB seemingly on pause for the foreseeable future, it’s hard to see the Bank of England going against the grain. But barring a more severe global downturn in growth, we suspect policymakers will be more inclined to play ‘catch up’. For this reason, we’ve loosely pencilled in a rate hike for November.”
“For the Bank of England outlook, a lot depends on how long the Article 50 negotiating period is extended.”
“On balance though, we suspect ‘no deal’ would cause a substantial hit to confidence (in addition to significant disruption to supply chains), which makes it much more likely the Bank would decide to cut interest rates in this scenario.”
Analysts at TD Securities point out that the Bank of England left its policy on hold today, with Bank Rate unchanged at 0.75% and it reiterated that eventual hikes would be “at a gradual pace and to a limited extent”.
“The tone of the accompanying Minutes flagged upside and downside developments, but had broadly neutral policy implications. The committee acknowledged that some incoming data was better than expected, leading to an upward revision of their 19Q1 nowcast to 0.3% q/q. But they also noted that despite recently strong official employment figures, some survey data was suggesting a significant moderation in employment data ahead (see chart). Underlying inflation pressures were judged to have been developing in line with their February forecasts.”
“The MPC continued to fret about Brexit developments, noting that ongoing uncertainty was weighing further on firms’ spending plans. They reiterated that the monetary policy response to Brexit could be in either direction, though we note that recent MPC rhetoric has suggested that a No-Deal Brexit would lead to policy easing, not tightening.”
“With Brexit developments in flux, should uncertainty continue well into 2019Q2, we will be minded to nudge our next expected BoE hike (currently August) to November or later.”
With the British pound struggling to find demand on Thursday amid the ongoing Brexit uncertainty, the EUR/GBP pair rose to its highest level since February 25 at 0.8690. However, with the latest Brexit headlines providing a modest boost to the GBP, the pair eased from its highs and was last seen trading at 0.8675, adding 0.3% on a daily basis.
Commenting on the UK’s request for an extension to Article 50, Austria’s Chancellor Kurz told reporters that an extension to Brexit was better than a no-deal scenario and added that he did not want the UK to take part in the EU elections. On the other hand, the opposition Labour Party’s leader Jeremy Corbyn said that he was confident that they could get a majority for a Brexit deal and added that he had constructive talks with the EU.
In the meantime, markets largely ignored the Bank of England’s announcements monetary policy announcements. As expected, the BoE left its policy rate unchanged at 0.75% with a unanimous vote and repeated that the policy action to Brexit outcome could be in either direction.
In a widely expected decision, the Bank of England’s Monetary Policy Committee held the policy rate unchanged at 0.75% with a unanimous vote. The asset purchase facility remained steady at €435 billion as well. Below are some key takeaways from the monetary policy statement.
When is the BoE rate decision and how could it affect GBP/USD?
The pair traded with a bearish bias around one-week lows ahead of the key event risk, though reaction to the BoE announcement seems more likely to be limited. Meanwhile, Yohay offers important technical levels to watch for: “1.3135 is the confluence of the Fibonacci 38.2% one-month, the Pivot Point one-day Support 1, and the Fibonacci 61.8% one-week.”
About the BOE interest rate decision
BOE Interest Rate Decision is announced by the Bank of England. If the BoE is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the GBP. Likewise, if the BoE has a dovish view on the UK economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.
Irish Prime Minister Leo Varadkar crossed the wires in the last minutes reiterating that any extension to Article 50 must have a purpose and nobody desired a no-deal Brexit. There was no market reaction to these remarks as participants are waiting for the Bank of England to release its policy statement.