BoE meeting the focus today

Sterling is largely unchanged against the dollar and the euro this morning ahead of the Bank of England’s interest rate announcement later today, as it continues to trade just below $1.25 and at 86p respectively. The market doesn’t expect any change in UK interest rates today but will be watching closely to see if the BoE gives any indication it may lower them over the remainder of this year. The euro is also little changed against the dollar this morning trading at about $1.0740.

Sovereign bond yields edged higher yesterday, having fallen fairly steadily over the course of last week and again at the start of this week, with US 10-year yields back up to around 4.50%. In equity markets, European stocks added to recent gains closing almost 0.5% higher, while US indices were flat to modestly up on the day.

Sweden’s central bank cut interest rates yesterday, lowering its key rate by 25bps. It noted that “inflation is approaching its target while (economic) activity is weak” and said it would cut rates two more times this year conditional on inflation evolving in line with its forecast.

ECB’s Holzmann says further interest rate reductions are likely to follow the widely anticipated cut in June, albeit he sees “no reason at all for us to cut rates too much too quickly” and cites September and December as the likely dates for further moves this year.

The Bank of England (BoE) announces its latest monetary policy decision at noon today. At its last meeting in March it voted 8-1 to keep interest rates on hold (at 5.25%), with two members who voted for tighter policy in February abandoning their call for a rate hike and the lone dissenter in March again voting for a 25bps cut. The BoE is expected to leave rates on hold again today, though we may see at least one more member vote for a cut, while its updated inflation forecasts could pave the way for an easing of policy over the coming months.

It is very quiet on the economic data front again today with jobless claims in the US the only release of note, while there is another smattering of ECB/Fed members scheduled to speak later.