Analysing the Market Ripple Effect: How the BoE Rate Decision Shapes Trends

In the aftermath of recent market movements, the resilience of the USD and US yields contrasts with the steady performance of equities, signalling a cautious sentiment among investors.

acy securities logo

While technical factors such as CTA flow and buybacks provide underlying support to equity markets, the enthusiasm to chase last week’s rally appears to have subsided.

The tepid demand witnessed in the US 10-year auction nudged US 10-year yields back up to 4.5% at the close, while anticipation builds for further supply with a 30-year auction looming. Consequently, the USD is gradually clawing back some of its early May losses, with the DXY surpassing 105.50 this morning, predominantly driven by the resilient performance of USDJPY.

US10YR Yields

US 10YR Yields graph
Source: TradingView

Amidst tight trading ranges, KRW emerges as the primary underperformer, with MXN also displaying weakness, reflecting sensitivities to US rates, USDCNY, and USDJPY, as highlighted by recent insights from our Asia team.

Yesterday’s performance witnessed SEK and JPY facing challenges, particularly with SEK bearing the brunt after the Riksbank’s decision to embark on a cutting cycle, aligning with the sentiments of our FX research team, who identify short SEK positions as indicative of divergence in G10 FX. Economists project three 25bp cuts this year, with expectations for a pause in June followed by subsequent cuts, diverging from current market expectations.

For SEK bears, yesterday’s price action provided relief amid concerns surrounding existing SEK funding. However, the attempt by NOKSEK to establish above 1.000 underscores the significance of this level for the pair.

Looking ahead, all eyes are on the Bank of England (BoE), with market attention focused on updated projections, vote split, and guidance wording to gauge the likelihood of a rate cut in June. While formal policy guidance is expected to remain largely unchanged, Governor Bailey’s commentary on the inflation outlook and the importance of near-term data will be crucial determinants.

Despite recent dovish signals, the absence of a clear endorsement for a June rate cut suggests a nuanced approach by the BoE. As an extra voter opts for a rate cut, short-dated rates witness a slight downward adjustment, signalling growing support for immediate action. However, the historical tendency of the committee members to move as a unified entity implies caution in interpreting the vote split.

BoE Rate Decision

BoE Rate Decision
Source: Finlogix Economic Calander

In essence, while the Bank of England acknowledges economic uncertainties, its cautious optimism suggests a gradual approach to monetary policy adjustments. As the debate between a June or August rate cut unfolds, the market remains attentive to forthcoming inflation data, with our base case tilted towards an August rate adjustment as the Bank maintains flexibility amidst evolving economic conditions.

The subject matter and the content of this article are solely the views of the author. FinanceFeeds does not bear any legal responsibility for the content of this article and they do not reflect the viewpoint of FinanceFeeds or its editorial staff.

Read this next

blockdag

Top Bullish Crypto: Fetch.ai & Pepe Coin Price Surge, But BlockDAG Sees Investor Rush as X Series Miners Stand Out

Compare Fetch.ai (FET) Bull Run, Pepe Coin price, and top bullish crypto BlockDAG. Discover why BlockDAG’s innovation and growth potential make it the best choice.

Digital Assets

Coinbase resumes XRP trading in New York after nine-month hiatus

Coinbase has resumed trading for XRP in New York, the company’s chief legal officer, Paul Grewal, announced on Thursday. This comes after a nine-month suspension of the cryptocurrency on the exchange due to regulatory scrutiny.

Institutional FX

Swissquote joins Fortex Hub to expand liquidity distribution

ECN trading platform and technology provider, Fortex Inc. has announced a new integration with Swissquote Group, Switzerland’s provider of online trading services.

Chainwire

Multipool Enters Partnership with Mobilum Offering Users Fiat to DeFi On/Off Ramp

Multipool, a leading innovator in the blockchain and cryptocurrency industry announces a corporate partnership with Mobilum.

Retail FX

IC Markets taps TipRanks’ trading research tools

Sydney-based IC Markets has completed integration of TipRanks’s rating tools, which ranks analysts and financial bloggers based on their picks’ performance analysis, in a bid to provide its clients with new research capabilities.

Digital Assets

Gate.io shelves plan to operate in Hong Kong

Gate Digital Ltd (Gate HK) announced it is winding down operations and has withdrawn its application for a crypto trading platform license in Hong Kong.

Chainwire

Sui and Mesh Combine Forces to Bring Simplified Transactions Across the Sui Ecosystem

With the addition of the Mesh platform, Sui Wallet will achieve product parity with the world’s largest self-custody wallets, while Mesh now natively supports the SUI token

Market News, Tech and Fundamental, Technical Analysis

EURGBP Technical Analysis Report 23 May, 2024

EURGBP currency pair can be expected to rise further toward the next resistance level 0.8560.

Digital Assets

Bybit denies financial woes and hacking rumors

Ben Zhou, CEO of Dubai-based cryptocurrency exchange Bybit, has refuted circulating rumors that the platform has been hacked or is insolvent. Zhou addressed the speculations in a post on the social media platform X.

<