BoE Could Boost the Sterling

Daily Analysis - 24/05/2018

Markets Avoiding Risk

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Markets were still in risk-off mode after a not-so hawkish FOMC minutes and lingering concerns over the fate of nuclear negotiations with North Korea. Meanwhile, U.S. President Trump considers new tariffs on foreign vehicle imports. The dollar was broadly weaker while gold got a lift on safe haven demand. Oil remains under pressure after a surprise build in U.S. crude inventories. The EIA report showed an increase to 5.8m barrels last week compared to an expected drop of 2.5m. WTI continues to trade below $72 a barrel.

Trade wars looming? Dovish FOMC minutes?


Fears of a trade war being reignited after Trump’s remarks on car tariffs led the dollar/yen pair to slide below 109.50. Meanwhile, the FOMC minutes released on Wednesday were not as hawkish as markets would have expected and this weighed on the greenback as well. The Fed did indicate it was on track for a rate hike in June but investors would have liked to have seen a clearer signal on more rate increases than the two additional rate hikes this year that are already priced in by the markets.

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Turkish lira reverses course


Turkey’s central bank announced a surprise interest rate increase to 16.5 percent on Wednesday to curb a further drop in the lira, which resulted in a reversal of all losses made by the currency yesterday. As a result, USD/TRY fell from record highs of 4.92 and is currently trading at 4.70.

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Could sterling get a lift from retail sales data?


The British pound will be in focus today as retail sales data are due for release. The figure for April is expected to show a 0.8 percent rise from March. If it beats this forecast, this could add some strength to sterling. The currency fell yesterday after disappointing U.S. inflation data. Cable is trading below $1.34.

 

 

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