Talking Points:

  • British Pound may fall as the BOE cools interest rate hike bets
  • Kiwi Dollar lower after RBNZ talks down tightening prospects
  • Anti-risk Japanese Yen down as stocks rise in Asia Pacific trade

All eyes are on the Bank of England for what has become known as “Super Thursday”. The central bank will deliver an interest rate decision, publish minutes from its latest policy meeting, and unveil updated forward guidance via the Quarterly Inflation Report (QIR). Governor Mark Carney will also hold a press conference to explain and expound upon the wealth of information on offer.

As it stands, baseline market forecasts see inflation decelerating as UK GDP growth slows in 2018, a view that is broadly echoed in the latest BOE projections. Since these were last updated, UK economic news-flow has mildly deteriorated relative to consensus forecasts. Still, priced-in policy bets have firmed over the past month and point to at least one rate hike in the second half of the year.

Given recent data flow and the Bank’s very cautious position vis-à-vis growth disruption threats from Brexit-related uncertainty, it seems unlikely that officials will turn markedly more hawkish. Rather, the most significant volatility risk seems to be the emergence of a more timid posture that clashes with investors’ rosier disposition. Needless to say, the British Pound is likely to decline in this scenario.

The New Zealand Dollar underperformed in otherwise quiet Asia Pacific trade. The currency slumped in the wake of the RBNZ monetary policy decision. The benchmark cash rate remained unchanged as widely expected but the statement accompanying the announcement carried decidedly dovish overtones. The Japanese Yen edged down as most regional stocks rose, hurting the appeal of the anti-risk currency.

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Asia Pacific Trading Session

British Pound May Fall as Bank of England Cools Rate Hike Bets

European Trading Session

British Pound May Fall as Bank of England Cools Rate Hike Bets

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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