The Bank of England is set to meet on Thursday and should leave monetary policy unchanged, with interest rates holding at 5.25%. 

The data has shown additional signs of progress, but various MPC (Monetary Policy Committee) members including Chief Economist Huw Pill have been quick to dampen speculation of a near term interest rate cut. This meet may well be more about whether there are any additional dissenting voters, in favour of an interest rate cut. The risks are asymmetrically skewed in that direction, and should another 1-2 members voting for a cut, then this would likely cement market expectations of an August easing, in my view. 

However, the performance of the GBP is unlikely to be materially affected by such news. Instead, the focus for the FX markets is likely to be on the outturn of the UK’s Q1 GDP (Gross Domestic Product) data. The consensus expectation is for a 0.4% quarter-on-quarter bounce in GDP growth, reversing Q4’s 0.3% quarter-on-quarter fall. 

It appears unlikely that the UK will see faster growth than that, but confirmation of a stronger rebound in activity than the Euroland Q1 GDP growth result might offer short term support to GBPEUR. As for GBPUSD, that might be more affected by news from the Middle East, in my view.

In terms of the ceasefire talks between Israel and Hamas, some progress appears to have been made, but Hamas’ enthusiasm to accept the terms of a proposal put forward by Qatari/Egyptian negotiators on Monday may have been premature, as Israeli negotiators refused to support the deal. 

Should there be a ceasefire agreed, then I would expect this to prompt a drop in oil prices as well as the USD, as tensions over the Strait of Hormuz and oil supplies would alleviate, in my opinion. However, agreement on a ceasefire was made less likely by a Hamas attack on a border crossing which left four Israeli soldiers dead. The markets will continue to hope for progress in these talks.

  The USD’s progress has stalled lately. The combination of intervention by the Bank of Japan (twice last week), some reduction in geopolitical tensions in the Middle East and weakness in the most recent US GDP and labour market figures have proven pivotal in this. Will the USD continue to weaken? Perhaps this week we will see other economies in the spotlight, given the relatively light US data and events calendar. 

It is also worth re-highlighting that there has been a significant shift in US interest rate cut expectations, which is unlikely to extend much further, as the markets now price in less than 2 interest rate cuts this year. Furthermore, Fed Chair Jerome Powell was quick to highlight that the Fed was not looking to raise interest rates further from here. An extension of recent USD strength looks unlikely based on the current US fundamental situation, in my view.

The Bank of England is set to meet on Thursday and should leave monetary policy unchanged, with interest rates holding at 5.25%. 

The data has shown additional signs of progress, but various MPC (Monetary Policy Committee) members including Chief Economist Huw Pill have been quick to dampen speculation of a near term interest rate cut. This meet may well be more about whether there are any additional dissenting voters, in favour of an interest rate cut. The risks are asymmetrically skewed in that direction, and should another 1-2 members voting for a cut, then this would likely cement market expectations of an August easing, in my view. 

However, the performance of the GBP is unlikely to be materially affected by such news. Instead, the focus for the FX markets is likely to be on the outturn of the UK’s Q1 GDP (Gross Domestic Product) data. The consensus expectation is for a 0.4% quarter-on-quarter bounce in GDP growth, reversing Q4’s 0.3% quarter-on-quarter fall. 

It appears unlikely that the UK will see faster growth than that, but confirmation of a stronger rebound in activity than the Euroland Q1 GDP growth result might offer short term support to GBPEUR. As for GBPUSD, that might be more affected by news from the Middle East, in my view.

In terms of the ceasefire talks between Israel and Hamas, some progress appears to have been made, but Hamas’ enthusiasm to accept the terms of a proposal put forward by Qatari/Egyptian negotiators on Monday may have been premature, as Israeli negotiators refused to support the deal. 

Should there be a ceasefire agreed, then I would expect this to prompt a drop in oil prices as well as the USD, as tensions over the Strait of Hormuz and oil supplies would alleviate, in my opinion. However, agreement on a ceasefire was made less likely by a Hamas attack on a border crossing which left four Israeli soldiers dead. The markets will continue to hope for progress in these talks.

  The USD’s progress has stalled lately. The combination of intervention by the Bank of Japan (twice last week), some reduction in geopolitical tensions in the Middle East and weakness in the most recent US GDP and labour market figures have proven pivotal in this. Will the USD continue to weaken? Perhaps this week we will see other economies in the spotlight, given the relatively light US data and events calendar. 

It is also worth re-highlighting that there has been a significant shift in US interest rate cut expectations, which is unlikely to extend much further, as the markets now price in less than 2 interest rate cuts this year. Furthermore, Fed Chair Jerome Powell was quick to highlight that the Fed was not looking to raise interest rates further from here. An extension of recent USD strength looks unlikely based on the current US fundamental situation, in my view.