Sterling continued to gain ground ahead of Thursday’s Bank of England policy decision amid speculation over a hawkish rate hike. The central bank increased interest rates by 0.25% to 0.75% which was in line with consensus forecasts. There was, however, an 8-1 vote for the increase with Cunliffe dissenting and calling for no change. There were, therefore, no calls for a 0.50% hike at this meeting. The central bank warned that inflation was liable to increase further and there is the risk of a fresh spike higher in the fourth quarter of 2022 as retail energy prices will be increased again. The bank, however, was also uneasy over the growth outlook with a squeeze on incomes. The bank stated that interest rates would be likely to increase again, although with less conviction given reservations over growth trends.
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ECB President Lagarde stated that inflation is increasingly likely to stabilise at 2% over the medium term while the bank also has scope to adjust policy in a timely fashion should it see risks of excess inflation extending into the medium term. She also warned that the war could cause the start of a new inflationary trends while the February Euro-zone CPI inflation rate was revised slightly higher to 5.9% from 5.8%. There was a slight shift in interest rate expectations with markets pricing in 50 basis points of rate hikes by the end of 2022 from 45 basis points on Wednesday. The Euro continued to edge higher into the New York open.
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US initial jobless claims declined to 214,000 in the latest week from 229,000 and below forecasts of 220,000 while continuing claims declined to 1.42mn from 1.49mn. The Philadelphia Fed manufacturing index strengthened to 27.4 for March from 16.0 previously and comfortably above market expectations of 15.0. There were much stronger readings for new orders and shipments and employment also increased at a faster rate on the month with the employment index at a record high. There was a sharp increase in the prices paid component to the highest rate since June 1979 while the prices received index also strengthened on the month. The dollar was unable to gain significant support from the data and the Euro continued to move higher.
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