British pound dips despite BOE’s rate hike

The news shaping the markets today

Russia said that its air force had destroyed 45 military facilities in Ukraine. Continued geopolitical tensions sent the safe haven US dollar higher on Thursday.

Australia’s Services Index increased to 57.8 in April, from 56.2 a month ago. The services sector expanding for the fifth consecutive month lend support to the AUD/USD forex pair.

Chile’s central bank announced plans to increase interest rates by 125 basis points to 8.25% at its latest meeting. However, the CLP/USD pair declined in forex trading this morning.

Argentina’s industrial production rose 3.6% year-over-year in March, versus an 8.7% increase a month ago. Despite this, the ARS/USD pair remained flat on the news.

Brazil’s trade surplus shrank to $8.1 billion in April, from $9.9 billion in the year-ago month, lending support to the BRL/USD forex pair.

What’s happening: The British pound fell sharply on Thursday, after the Bank of England announced its policy decision.

What happened: UK’s central bank hiked interest rates to the highest level since 2009 on Thursday, with some policymakers calling for a bigger rate hike.

Despite this, the sterling fell to multi-year lows after the Bank of England warned of a sharp slowdown in the country’s economic growth.

Why it matters: Central banks around the world are looking to combat rising inflation, with the supply disruptions caused by the pandemic and elevated energy prices after Russia’s invasion of Ukraine.

In a widely expected move, the Bank of England raised its benchmark interest rate at its fourth consecutive meeting since December. The central bank’s policymakers voted 6-3 to raise rates by a quarter-point from 0.75%. However, three officials called for a bigger 50 basis point hike to 1.25% to cool the accelerating inflation levels.

Policymakers also warned of a sharp deceleration in the country’s GDP growth, with inflation projected to peak at 10% later this year.

The announcement sent the GBP/USD pair to its lowest level since July 2020. The sterling also hit its lowest level against the euro since December 2021 on Thursday.

The BoE maintained its economic growth projections for this year at 3.75% but reduced its 2023 forecast to a contraction of 0.25%, versus its prior forecast of 1.25% growth. The bank also lowered its 2024 growth projection from 1.0% to 0.25%.

UK’s consumer price inflation had surged to a 30-year high of 7% in March, sharply higher than the BoE’s 2% target. The central bank also revised its forecast for consumer prices, now expecting inflation to peak above 10% during the final three months of 2022. It had earlier expected consumer price inflation to peak at around 8%.

The GBP/USD forex pair shed more than 2% to settle at 1.2359, while the sterling fell more than 1% against the euro, to close at 85.30 pence on Thursday.

What to watch: Traders will keep an eye on inflation data and the ongoing war in Ukraine. Investors await the release of the Halifax house price index and S&P Global/CIPS construction PMI from the UK today.

The markets today

US stocks will be in focus today ahead of the jobs report from the country

Context: Wall Street stocks recorded their worst day of the year on Thursday, after notching sharp gains in the previous session.

Details: There was a strong rally in US stocks on Wednesday, after the Federal Reserve raised its interest rates by 50 basis points and announced plans to begin reducing its balance sheet in June. Fed Chairman Jerome Powell indicated that the bank was not considering a bigger 75 basis point rate hike.

The Dow Jones index jumped 932 points on Wednesday, while the S&P 500 added 2.99%, notching its strongest gains since 2020. The Nasdaq also climbed around 3.2%. However, all the gains were erased on Thursday, with a sharp sell-off in several of the index heavyweights.

Big tech stocks came under pressure, with shares of Meta Platforms and Amazon declined by more than 6% each on Thursday. Microsoft’s stock lost around 5% in the session.

Ecommerce stocks also moved lower on Thursday. Shares of Etsy and eBay fell after the companies issued disappointing revenue forecast.

Investors also responded to weak employment data on Thursday. The number of people filing new claims for jobless benefits rose by 19,000 to 200,000 in the week ending April 30.

The 30-stock Dow Jones index tumbled around 1,063 points to close at 32,997.97 on Thursday. The S&P 500 fell 3.56% to 4,146.87, while the Nasdaq 100 dipped 5.06% to settle at 12,850.55.

What to watch: Investors await the release of the US jobs report today. The US economy, which added 431,000 payrolls in March, is expected to add another 391,000 jobs in April. Analysts also expect the unemployment rate to fall to 3.5% in April, from 3.6% in March.

Other Markets: European trading indices closed mostly lower on Thursday, with the DAX 40, CAC 40 and STOXX Europe 600 down by 0.49%, 0.43% and 0.70%, respectively. However, the FTSE 100 bucked the trend, gaining 0.13%.

Support & resistances for today

Market snapshot

What else to watch today

Germany’s industrial production, Russia’s composite PMI and services PMI, France’s foreign exchange reserves and payroll employment in the private sector, Spain’s industrial production, Italy’s retail sales, Mexico’s auto production, auto exports, and gross fixed investment, India’s value of loans, value of deposits, Foreign exchange reserves and central government budget value, Brazil’s car production and auto sales, Canada’s unemployment rate, employment change and Ivey Purchasing Managers Index, as well as US Baker Hughes crude oil rigs and consumer credit.