GBP/USD edges lower on BoE’s rate decision

Today’s headlines

What’s happening: The British pound declined on Friday, as investors assessed the Bank of England’s rate decision.

What happened: The Bank of England kept its benchmark interest rate unchanged at 5.25% during its meeting on May 9.

Officials also released their projections for GDP growth and inflation rate for the UK.

Why it matters: The central bank held the key bank rate at 5.25% on May 9, keeping its benchmark interest rate at the highest level since 2008. The move was broadly in-line with market expectations.

However, two members of the committee voted in favour of slashing interest rates by 0.25 basis points (bps), versus only one member in the prior meeting. Officials also revised the inflation outlook lower, while increasing their growth forecast.

The key bank rate could decline from the current 5.25% to 3.75% by the end of the outlook period, as per the latest projections by the Bank of England. Officials projected the UK economy to expand by 0.4% in the first quarter and by 0.2% in the second quarter. However, demand is expected to remain weaker than supply growth. The CPI inflation is projected to inch closer to the 2% projection in the near term.

There were growing speculations of interest rate cuts in June after the BoE’s announcement, while markets have fully priced in a 25bps cut in August.

Some strength in the US dollar also exerted pressure on the GBP/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained about 0.1% to 105.30.

The GBP/USD forex pair fell around 0.1% to 1.2517 this morning, after hitting a one-week low in the prior session. The EUR/GBP pair slipped around 0.1% to 1.0776. London’s FTSE 100 added 0.33% to close at 8,381.35 on Thursday.

What to watch: Investors await the release of economic data on GDP growth, balance of trade and industrial production from the UK today. The UK’s economy, which contracted by 0.3% in the final quarter of 2023, is expected to grow by 0.4% in the first quarter.

Analysts expect the UK’s trade deficit to shrink to £2.1 billion in March, from £2.291 billion in February, while industrial output is projected to grow by 0.3% year-over-year in March, following a 1.4% surge in February.

The markets today

Roblox Corp will be in focus today after releasing results for the first quarter

Context: Shares of Roblox tumbled during Thursday’s session, after the company issued a weak outlook.

Details: Roblox reported growth in bookings of 19% year-over-year to $923.80 million, beating the consensus estimates of $922.98 million. Adjusted loss came in at 43 cents per share, better than Wall Street expectations of a loss of 53 cents per share.

The company’s average daily active users jumped 17% to 77.7 million in the quarter. This, however, marked the weakest growth rate since the company went public in 2021. The average monthly unique payers rose 13% to 15.6 million. Hours engaged rose 15% year-over-year 16.7 billion.

Roblox slashed its outlook for annual bookings, an indicator of future revenue, which raised concerns around people cutting their spend in the videogame industry amid economic growth uncertainty and sticky inflation.

Management guided to bookings between $870 million to $900 million for the second quarter, below market estimates of $934.09 million. They lowered their 2024 projections for bookings from between $4.14 billion and $4.28 billion to between $4.00 billion and $4.10 billion.

How shares responded: Roblox’s shares tanked 22.1% to close at $30.42 on Thursday, following the release of quarterly results. The stock has tumbled around 24% over the past month.

What to watch: Investors will continue monitoring overall economic and inflation forecasts, which could significantly impact the videogame developer’s results ahead.

Other Markets: European indices closed higher on Thursday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.33%, 1.02%, 0.69% and 0.19%, respectively.

The news shaping the markets

Ukraine’s President Zelenskyy named Brigadier General Oleksandr Trepak as the commander of the country’s special forces. The news sent the safe-haven US dollar index higher in forex trading this morning.

Japan’s household spending fell in real terms by 1.2% year-over-year in March, following a 0.5% decline in the earlier month, which exerted pressure on the JPY/USD forex pair.

New Zealand’s BusinessNZ performance of manufacturing index rose to 48.9 in April, from 47.1 a month ago. Factory activity remaining in the contraction zone for 14 straight months sent the NZD/USD pair lower in forex trading this morning.

Mexico’s annual inflation rate rose to 4.65% in April, from 4.42% a month ago, exerting pressure on the MXN/USD forex pair.

Peru’s central bank lowered its policy rate by 25 basis points during its May policy meeting, in-line with expectations. The move sent the PEN/USD pair higher in forex trading this morning.

What else to watch today

UK’s business investment, goods trade balance, manufacturing production, construction orders and construction output, France’s foreign exchange reserves, Turkey’s industrial production, jobless rate and labour activity rate, Italy’s industrial production and industrial sales, China’s current account, India’s foreign exchange reserves, industrial output and manufacturing production, Brazil’s inflation rate, Mexico’s industrial production, European Central Bank’s monetary policy meeting accounts, Canada’s employment change, average hourly earnings and unemployment rate, US University of Michigan consumer sentiment, government budget, Baker Hughes crude oil rigs and Baker Hughes total rigs, China’s vehicle sales, as well as Russia’s total vehicle sales.