There were no surprises in the Bank of England’s policy decision today to leave interest rates unchanged at 0.75%.
The real surprise was the bank’s latest growth forecasts, which left the doors open for further tightening in the future. Sentiment over the UK economy is poised for a boost, given how economic growth is now projected to expand to 1.5% this year from the decade-low 1.2% predicted in February. While growth figures were revised higher, inflation figures were revised lower, to 1.6% in 2019 and 2.0% in 2020.
Overall, the Bank of England came across as cautiously optimistic but also highlighted how Brexit continues to cloud the outlook for monetary policy. With the central bank likely to maintain a patient stance and closely monitor Brexit developments before making any decision on interest rates, the Pound is seen edging lower in the short to medium term.
Should economic data from the UK continue to improve and more clarity is offered on Brexit, the BoE will have a valid argument for taking action. However, when it comes to Brexit, if uncertainty remains the name of the game, rates are likely to remain unchanged for the rest of 2019.
Looking at the technical picture, the GBPUSD is under pressure on the daily charts with prices trading marginally below 1.3050 as of writing. Sustained weakness below this point is seen opening a path back towards the psychological 1.3000 level.
Dollar rebounds as Fed quell rate cut hopes
Dollar bulls were injected with fresh inspiration, thanks to the Federal Reserve sounding less dovish than expected on Wednesday evening.
With Jerome Powell indicating that the central bank’s current policy stance is appropriate, investors were forced to re-evaluate the probability of a rate cut by the end of 2019. The Dollar is seen pushing higher in the near-term as recent, positive economic data from the States ensures that the Greenback remains a destination of safety in times of uncertainty.
The next major risk event for the Dollar will be the US jobs report scheduled for release on Friday. Confidence over the US economy is likely to receive a boost if the jobs data results exceed market expectations.
How will NFP impact the Naira?
The US jobs data report is unlikely to have an immediate impact on the Naira. However, if the report dishes out an upside surprise and fuels expectations of a US rate hike, the Naira, like many other EM currencies, may feel the heat.
Hypothetically, the prospects of higher rates have the potential to fuel concerns over capital outflows from emerging markets, which is seen weighing on the Naira and many other EM currencies.
Commodity spotlight – Gold
The Dollar’s appreciation following the Fed meeting mid-week has offered nothing but pain and punishment to Gold, with prices trading towards $1,270 as of writing.
A less dovish-than-expected Federal Reserve was negative for Gold prices, while optimism over US-China trade talks compounded downside pressures. With the Dollar likely to remain supported ahead of the US jobs report on Friday, the precious metal is seen breaking below $1270 in the near term. Should the pending NFP report exceed market expectations, Gold is likely to slide towards $1265.
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