Sterling was again confined to relatively narrow ranges during Wednesday with a lack of fresh incentives. Markets will be looking for high-frequency data to assess whether there has been a slowdown in consumer spending and markets also will be anxious for any guidance from bank of England officials. Sterling did gain an element of support from solid risk conditions as European equities made headway. The ability to hold key levels against the dollar also triggered an element of Sterling buying and a covering of short positions. As the dollar edged lower, there were gains while the Euro secured a net advance. There was no significant impact from UK political developments with a House of Commons debate on Prime Minster Johnson due on Thursday and the government aiming to delay any move to refer Johnson to the privileges committee.
Any direct comments on monetary policy from Bank of England Governor Bailey on Thursday will be much more important for markets with MPC member Mann also due to make comments. Sterling was able to hold in early Europe on Thursday as global moves tended to dominate.
Key Data
BoE’s Governor Bailey speech
Euro-zone industrial production increased 0.7% for February with a 2.0% annual gain compared with consensus forecasts of 0.8% and after a 1.5% decline previously. ECB council member Kazaks stated that a rate hike was possible as soon as July as a gradual approach does not mean a slow response and that the central bank does not need to wait for stronger wages growth. Bundesbank head Nagel stated that he expects the first rate hike to come in the third quarter while also warning that getting inflation back to the 2% target is looking ever less likely. Overall rhetoric was slightly more hawkish.
The latest opinion poll for the second round of the French Presidential election recorded 55.5% for Macron, although markets were waiting for reaction to the TV debate. Overall, there was tentative net Euro support from the ECB talk and energy prices retreated which helped underpin the currency. The dollar also corrected significantly in European trading as yields retreated with the Euro moving to new highs.
Key Data
ECB’s President Lagarde speech
The Fed’s Beige Book stated that economic activity continued at a moderate pace. Most districts stated that inflationary pressures remained strong with further upward pressure on costs, although there was some evidence that strong wages growth had started to slow.
This comes after the IMF cut its global economic growth forecast on Tuesday, for both 2022 and 2023, largely due to the effects of Russia’s invasion of Ukraine. Investors will be listening closely to Powell’s remarks for any more clues around the Fed’s plans to aggressively tighten monetary policy, in order to rein in inflation. Concerns around inflation and the potential effect of tighter Fed policy has seen yields spike, with the 10-year hitting its highest point since late 2018 on Tuesday, at 2.94%.
Key Data
Fed’s Chair Powell speech