GBP

The pound fell aggressively yesterday after the Bank of England raised interest rates for the fourth consecutive meeting by 0.25% to 1%, the fastest pace of policy tightening in 25 years. Even though three policymakers voted for a bigger increase to 1.25%, the pound slumped when the central bank slashed its growth forecasts for 2023 and sent a stark warning that Britain risks a double-whammy of a recession and inflation above 10%. The BOE’s warning sent Sterling spiralling down losing over 2% against the dollar – its biggest daily lost since March 2020 – and 1.25% against the euro. It continues to be pressurised in early trading and speeches by several policymakers will be closely watched. Early results on Friday showed the Conservative Party losing control of traditional strongholds in London and suffering losses elsewhere in local elections. The tory party was ousted in Wandsworth, a traditional conservative stronghold since 1978, part of a trend in the capital where it appeared voters used the elections to express their anger over the cost-of-living crisis and punished the government over a raft of scandals. The overall tally due later today will offer the most important snapshot of public opinion since PM Johnson became the first leader in living memory to have broken the law while in office.

EUR

The euro remains under pressure against the dollar after the release of German industrial production figures this morning. The data showed that production in Europe’s economic powerhouse slumped 3.9% in March amid supply chain issues, undershooting expectations of a 1% decline. The last time there was a sharper fall was in April 2020 at the beginning of the coronavirus pandemic. The single currency showed little reaction yesterday when the European Central Bank’s chief economist Philip Lane said the central bank is preparing for a sequence of rate hikes that will put its benchmark rate in positive territory. With inflation soaring to a record 7.5% high last month, policymakers have recently advocated a quicker exit from the central bank’s bond buying scheme, in preparation for raising rates.

USD

The dollar is on course for its fifth winning week against its major peers on Friday, ahead of a closely watched US jobs report that may reinforce the case for aggressive monetary policy tightening by the Federal Reserve Bank. Economists are predicting a strong Nonfarm payroll report, with 391,000 jobs being added last month. The greenback’s most recent gains have come from demand for safe-havens as market fear that China’s covid lockdown could hurt the global economy. Overnight, Chinese leader Xi Jinping vowed to “unswervingly adhere to the general policy of dynamic zero–covid” fuelling fears of a slowdown in Chinese growth and disruption of global supply chains. This is the first time Xi has made public remarks about China’s battle against Covid since public furore erupted over the harsh lockdown in Shanghai.

Economic Calendar

10:00 GBP BOE’s Mann speech
12:15 GBP BOE’s Pill speech
13:30 USD Non-Farm payroll
14:15 USD Feds Williams speech
16:00 GBP BOE’s Tenreyro speech