British Pound May Rise as the BOE Revives 2018 Rate Hike Bets
TALKING POINTS – BANK OF ENGLAND, POUND, SNB, NEW ZEALAND DOLLAR
- British Pound may rise as the BOE upgrades official rhetoric
- SNB unlikely to budge from the ultra-loose policy status quo
- NZ Dollar sinks after disappointing 20-year bond sale results
Monetary policy announcements from the SNB and the Bank of England are in focus in European trading hours. The former is almost an afterthought. The dovish stance adopted by the ECB suggests that the Swiss central bank is likely to retain its ultra-accommodative posture, lest a drop in the EUR/CHF exchange rate undermine hard-fought progress toward rekindling inflation in recent months.
Meanwhile, the BOE Governor Mark Carney and company might offer a lift to the British Pound. No change in rates is expected but the recent pickup in economic activity might inspire a slightly more assertive tone. That might remind investors that the MPC is still aiming for a hike as its next move, marking up the probability that the increase occurs sometime before the calendar turns to 2019.
The New Zealand Dollar underperformed in Asia Pacific trade. The currency shrugged off in-line first quarter GDP data but selling pressure mounted after yields fell at a 20-year bond auction. The average rate fell to 3.26 from 3.39 percent when analogous paper was sold two months ago. That this happened even as demand weakened – the bid-to-cover ratio fell from 2.65 to 1.16 – may imply a dovish shift in RBNZ policy bets.
The anti-risk Japanese Yen and Swiss Franc declined as a lull in the US-China trade war narrative allowed for a broader recovery in sentiment across most regional bourses. The US Dollar pushed higher alongside front-end Treasury bond yields in what looked like an upshift in the expected Fed rate hike path following hawkish comments from Chair Jerome Powell at the ECB Forum in Sintra, Portugal.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.