Dow in the green again, BoE in focus

Headlines

* BoJ’s Ueda ramps up yen warnings while traders keep selling

* Bank of England to keep alive prospect of summer rate cuts

* USD gains on rate outlook, GBP remains on the defensive around 1.25

* Gold holds ground as bugs await US data for rate cut clues

FX: USD finished higher for a second day but gave back some of the session’s gains. Support for the greenback came from more upside in USD/JPY. Fresh other catalysts are few currently. The ten-year Treasury yield steadied just below 4.50%.   

EUR finished lower for the second straight day. Industrial production data was softer than expected. Near-term spreads between eurozone and US bond yields remain relatively stable. The 50-day and 200-day SMAs sit above at 1.0789 and 1.0793.

GBP sold off again but made back some losses. All eyes are on today’s BoE meeting where rates will be left on hold. June rate cut guidance will be in focus, plus the fresh quarterly forecasts.

USD/JPY advanced for a third straight day with a high of 155.68. BoJ Governor Ueda was on the wires early in the day. He cautioned against “abrupt, one-sided” moves who said it was negative for the economy. The 50% point of the recent high (160.20) to low (151.85) is at 156.03.

AUD sold off again as the major fell further away from resistance around 0.6641. The midpoint of the Q4 rally is 0.6571. USD/CAD finished a touch higher after initially making solid gains and remains above 1.37.

Stocks: US equities finished mixed after Fed officials remarks and corporate earnings.  The broad-based benchmark S&P 500 finished flat at 5,187. The tech-dominated Nasdaq 100 underperformed, losing 0.04% to close at 18,085. The Dow Jones settled up 0.44% at 39,056. Those gains extended its winning streak to six days. Uber stock plunged nearly 9% after an earnings miss. Tesla lost another 1.74% on reports Tesla is being examined for wire fraud by misleading investors about its EVs’ self-driving capabilities.

Asian Stocks: APAC futures are mixed. Asian stocks traded mostly lower on the choppy price action Stateside. The ASX 200 lacked any decent direction with softer miners offset by energy gains. The Nikkei 225 underperformed on disappointing Nintendo guidance. The China indices were undone by trade frictions after the US revoked more export licences.

Gold fell again, very mildly in a narrow range day. Prices continue to consolidate around $2300.

Day Ahead – Bank of England Meeting

The BoE will leave rates unchanged at a 16-year high at 5.25%. The vote is expected to remain at 8-1, with one lone dovish dissenter. There are some economists who think Ramsden could switch to vote for a cut, but that is not consensus and would be dovish. Key for markets will be if the MPC line up a June rate cut with a change in guidance. A tweak to the statement language could see a change to the phrase about rates being “sufficiently restrictive” for an “extended period”.

Updated quarterly forecasts will be published, with inflation downgrades forecast. Any deep cuts, to potentially 1.5% over the medium term, could be seized upon by sterling bears as a signal that policy easing is imminent. We note the divergent recent views from MPC members. On the one hand, previous hawk, Ramsden, said he is increasingly confident that inflation risks are now tilted to the downside. But Chief Economist Pill has been more cautious, stating that the time for rate cuts was some way off. This all means the bank may want to keep all its options open.

Chart of the Day – GBP/USD turns down this week

After dipping to multi-month lows at 1.2299 in late April, Cable pushed above the halfway point of the Q4 rally at 1.2465. It has been trading around the mid-1.25 area recently but has struggled at the 200-day SMA at 1.2545 currently. Gains have faded this week with longs starting to bail out below 1.2525. Support sits at the 50% major Fib level but lose this and 1.24 beckons. The post-NFP high at 1.2634 seems some way off unless Bailey & Co are more hawkish.