The UK services PMI index was revised to a final 58.9 from the flash reading of 58.3, but had no impact and Sterling held steady into the Bank of England decision. The central bank increased interest rates by a further 25 basis points to 1.00% which was in line with consensus forecasts. There was, however, a 6-3 split for the decision with Haskel, Saunders and Mann voting for a larger 50 basis-point increase and the decision was slightly more hawkish than expected. The monetary policy report stated that inflation was expected to peak just above 10% late this year. The revised growth forecasts were a key element with a notably bleak set of results. The bank forecasted that GDP would dip in the fourth quarter of this year and contract slightly in 2023 with only marginal growth in 2024. The consensus was that further rate increases would be needed, but some members disagreed with this analysis and suggested that rates should not increase further. The very downbeat stance on the economy triggered a downward revision to interest rate expectations and Sterling came under heavy pressure.
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09:15 BOE Member Mann speech
11:15 BOE Member Pill speech
The Euro was unable to make any headway ahead of Thursday’s market open with important underlying concerns surrounding the Ukraine conflict. There was also net Euro selling against the dollar after Sterling came under heavy selling pressure following the Bank of England policy meeting. ECB council member Rehn stated that it would be reasonable to hike interest rates 25 basis points in July which provided only slight Euro protection. There were further concerns over the Ukraine situation, especially with concerns that Russia would escalate attacks ahead of the May 9thVictory Day parade.
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US initial jobless claims increased to 200,000 in the latest week from a revised 181,000 previously and above consensus forecasts of 182,000 while continuing clams declined to 1.38mn from 1.40mn and the overall evidence indicated that the labour market remained tight. Yield spreads and renewed dollar support boosted the US currency in New York and there was heavy selling pressure on commodity currencies which also boosted the US dollar. In this environment, the Euro declined sharply to lows at the European close while the dollar index posted a fresh 20-year high. The latest US employment report will be released on Friday with expectations of an increase in non-farm payrolls of close to 400,000 for April and a further tick lower in unemployment to 3.5%. The wages data will an important element, especially given the Fed focus on a tight labour market and upward pressure on wages.
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12:30 US Non Farm Payroll Forecast 391k. Previous 431k