Bank of England in focus today

Equity markets in Asia were under pressure overnight on the back of on-going concerns about the coronavirus, which is likely to spill over to European stocks this morning and contribute to a further decline in core bond yields (German 10-year yields are almost 10bps lower this week to date at circa -0.40%). All of this continues to support the dollar, which is trading a tad above $1.10 against the euro this morning having briefly dipped below this level yesterday

The Fed left its key interest rate unchanged at the end of its two-day meeting, as widely expected, and reiterated that the current level of rates is “appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to” its 2% target

The European Parliament yesterday approved the Withdrawal Agreement, clearing the way for the UK to leave the European Union at 11pm tomorrow night!

The Bank of England’s MPC interest rate announcement at noon is the main focus for the market today. The latter is pricing in about a fifty-fifty chance of a 25bps cut and the decision of the nine-member MPC could also be a close call, but on balance we think it will vote to lower rates.

Ahead of today’s BOE’s decision, the pound has weakened a little to almost 85p against the euro and to under $1.30 against the d0llar

Data due today incudes Euro Area unemployment and the European Commission’s Economic Sentiment Indicator for the zone, as well as inflation in Germany and a first estimate of  GDP growth in the US in Q4 last year