BoE Interest Rate Expectations
Extremely positive U.K. fundamental data overnight led to a reversal of the existing negative trend in U.K. interest rates expectations. Industrial production in March jumped 2.0% smashing forecasts for a 0.3% gain led by a 2.3% surge in manufacturing. Meanwhile, the April GDP estimate improved to 0.5% from 0.4% the month prior signaling that the country’s recovery is sustaining. Overnight index swaps went from pricing in 34 bps worth of rate hikes over the next year to 47.7. However, the brighter outlook could dim following the quarterly inflation report if the central bank signals that they will remain on hold over the medium term. Discuss this and trading ideas join the GBP/USD
FOMC Interest Rate Expectations
U.S. interest rate expectations rose following Friday’s U.S. labor that showed the economy added more than 200,000 jobs in the past two months. Although the report showed the unemployment rate rising to 9.9% which is the metric that policy makers have targeted as a gauge for when to raise rates, it was mainly due to new entrants into the labor market. Therefore, if the current trend continues we could start to see the level of unemployed fall, clearing the way for higher rates. Markets are only pricing in a 10.2% chance of a rate hike in June, with odds still in the favor of monetary policy remaining unchanged through September.
U.S. equity markets regained their footing after earlier weakness on the back of concerns that the euro
-area aid package isn’t enough to cure the region’s ills. Clarification in the U.K. political structure has been cited as a catalyst for the rebound. However, we could also be seeing the U.S. becoming the most attractive market with troubles in Europe and the prospect for increasing interest rates in China. The 38.2% Fibo of 9835-11,257 held and if we remove the extreme volatility from last week the level sets up as a solid support line. Discuss this and other fundamental data in the Economics Forum
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