ECB Governor Draghi will make a speech in the Dutch Parliament at 12:00 BST today. It will be Draghi’s first speech after the French election so traders should be aware of any comments on the Eurozone’s economic outlook or hints of a possible gradual removal of QE.
Thursday May 11th is a crucial day for GBP traders with the release of a series of UK economic data at 09:30 BST. Followed by the Bank of England’s (BoE) interest rate decision and monetary policy minutes at 12:00 BST and the NIESR GDP estimate (Feb to April) at 13:00 BST.
Recent UK economic data has been soft, lowering market expectations for a rate hike. The general election will be held on June 8 and, with the Brexit procedure ongoing, the BoE is unlikely to take any actions at least before the election result; therefore, they are likely to keep policies steady until the Brexit negotiation deal has a clear outline.
UK inflation saw an upswing following the Brexit vote, reaching the central bank’s 2% target, due to the weakening of GBP since the Brexit referendum. A weak pound is beneficial for exports and inflation, however, as wage growth has slowed down the rising inflation will likely undermine consumer expenditure; one of the major drivers of the economy.
GBP/USD has rallied approximately 3% since Theresa May’s announcement of a snap general election on April 18. On Monday May 8 GBP/USD hit a 7-month high of 1.2988, trading just below the significant psychological level at 1.3000, where heavy selling pressure is expected.
The BoE’s announcement will likely cause a move to GBP and GBP crosses. With a hawkish comment GBP/USD will likely breach the level at 1.3000. Conversely, with a dovish comment, we will likely see a correction downward.
The French election outcome has lifted markets’ risk-on sentiment and resulted in safe heavens retreat, US and European treasury yields rise thereby pushing USD and EUR up against JPY. On Tuesday, the dollar index hit a 2-week high of 99.55. USD/JPY hit a high of 114.32, and spot gold hit a low of 1214.15, previously reached on March 15.
Bank of Japan (BoJ) Governor Kuroda stated on Tuesday that the Japanese and global economy saw a recovery, however, the BoJ will continue its QE programme as inflation is expected to reach above the 2% target in 2018. The statement further weighed on JPY.
The Bank of Japan has been considering a gradual removal the long-standing QE. However, while the economic recovery is still fragile, it is likely that it will take an extended period for the BoJ to implement it until it sees solid and stable economic and inflation growth.