The BoE was far from unanimous in their vote to cut rates by a quarter point at their April policy meeting with a 6-2-1 vote. Perennial dove David Blanchflower voted for a half point cut, while traditional hawks Andrew Sentance and Tim Besley voted against it. The central bank felt that the downside risks to consumer spending and investment caused by the tight credit markets and the current housing slump outweighed inflation concerns in the short term. However, they were convinced that inflation would continue to rise above their 2% target, with the possibility of breaking their 3% threshold. Those concerns have since been amplified with oil setting a new record high of $119 per barrel. The somewhat hawkish comments saw the Pound jump 72 points to 1.9972, but started retracing shortly thereafter. Traders are starting to speculate that the MPC may felt that future ate cuts aren’t warranted after their recent £50 billion mortgage bailout, which may provide a bid for the cable going forward.

Meanwhile, European IFO printed better than expected at 51.9 against expectations of 51.5 and up from 51.8 the month prior. Growth in the service sector outweighed a decline in manufacturing. The news firmed up the Euro which had been descending from its record high of 1.6020, after talk that ECB’s Noyers hawkish comments yesterday were misinterpreted. European industrial new orders also unexpectedly rose 0.6% in February against expectations of a decline of 0.4% on increases in textiles and chemicals. The continued resilience of the European economy will start to rekindle talk of decoupling, as its U.S. counter part continues to decline despite the expected benefits from a weakening dollar. The continuing hawkish commentary from ECB members and the economy’s ability to grapple with a strong currency and record oil prices may push out the anticipated dollar reversal further than expected.  

Australian inflation rose above 4% for the first time in seven years at 4.2%. Speculation that the RBA may raise rates again led the Australian Dollar to set a fresh 24 year high at 0.9540 before major stops tripped it up. After the central bank left rates unchanged at its last meeting on March 31, many felt that their tightening policy may have ended. However, if inflation continues to remain at current levels more rate hikes may be in store.

The only significant fundamental data on tap for the U.S. is MBA mortgage applications which isn’t expected to have any significant impact on the dollar. Traders will continue to focus on the rhetoric from the ECB to see if they can gleam further insights into the MPC’s thinking. However, a strong report on earnings from Apple may spark some dollar euphoria and give hope that a full blown recession may still be avoided.


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