Preview: Bank of England meeting

By Kathleen Brooks, research director at XTB

The dollar has got its mojo back as we wait for the BOE meeting later today. This has temporarily hampered the pound’s ability to climb above $1.30 vs the USD. However, we continue to think that this level is achievable in the medium term.

Ahead of today’s BOE meeting, the Uk labour market was in line with expectations, which has also muted the market reaction. Wage data including bonuses expanded by 5.8% vs 5.9% ex bonuses, there were larger gains in the private sector vs. The public sector. Real wage data, adjusting for inflation, trended lower last month, due to the rise in inflation. Unemployment ticked higher to 4.4%, however the UK’s unemployment rate is mostly stable, although risks remain due to the rise in employers national insurance that will kick in from next month.

Overall, the Labour market data was not particularly market moving. The movement in uk asset prices will most likely come from reaction to the Fed meeting and other central banks, we expect the BOE to be something of a non event later today.

The Fed meeting on Wednesday has complicated the short term picture for forex, as the dollar pauses in its downtrend. The Fed cut its growth forecasts, but it raised its inflation estimates, which is triggering two different reactions in the stock market and the forex market.

Stocks have been reassured by powell’s belief that inflation will be transitory, however, the dollar is rallying, suggesting that forex traders are taking transitory with a pinch of salt.

This is giving the dollar a boost for now. This BOE meeting should pass without too much drama later on Thursday. No change is expected, and there is no press conference at this meeting. The big meeting for BOE watchers will be the May meeting, when they are expected to cut rates.

For now, we do not think that the market will reassess the prospect of two rate further rate cuts from the BOE for 2025, and the market reaction to this meeting could be limited.

It’s a central bank fest on Thursday, and European stock markets are mostly flat at the open of trade. Traders and investors will want to see what happens at the BOE and SNB along with the Swedish Riksbank. The Riksbank is worth watching, as they may signal that they are wiling to pause their rate cutting cycle due to inflation concerns. This could knock sentiment towards European stocks later on Thursday.

The US is also worth watching. Tech stocks led the market higher on Wednesday, however, gains in the pre market have been modest. Will the Fed have helped US stocks make a bottom, after a bruising Q1? US markets had a broad based rally after the Fed meeting on Wednesday, with value and growth stocks moving together. If we see further gains on Thursday and if US indices can move back above their 200 day smas, then the basis for a prolonged recovery rally could be in place.