BoE decision day

MORNING OVERVIEW

The BoE’s interest rate decision is set to take place later on today, with the bank expected to remain on hold. Interest may shift to the BoE’s inner dynamics i.e how many voted for a rate hike vs how many voted to remain on hold. Moreover, the Fed raised interest rates yesterday, with Fed Chair Warsh signalling that he is prepared to tame inflation in the US economy. For tomorrow, traders may also be interest in the BOJ’s monetary policy decision, with the bank widely expected to hike rates by 25 basis points.

MARKET SNAPSHOT

MARKET	CURRENT	CHANGE	COMMENT
S&P 500	7610	+0.77%	Market optimism
DXY	100.21	-0.04%	Fed policymakers to shape the dollar
GBP/USD	1.3386	+0.04%	BoE decision today
Gold	4325	+1.45%	N/A
Brent Crude	104.82	-0.86%	Mid-East in focus

KEY MARKET THEMES

01 — BoE decision today

The BoE’s interest rate decision is set to take place later on today. The majority of market participants are currently anticipating the bank to remain on hold, thus attention could turn to the bank’s accompanying statement. Should the banks accompanying statement showcase a willingness by policymakers to hike rates in their next meeting, it may amplify the market’s rate hike expectations, which may in turn aid the sterling. In our view, we would be more interested in how many MPC members vote in favour of a rate hike over those voting for a hold, as it provides greater insight into the bank’s inner dynamics and we would not be surprised to see a shift towards a more restrictive monetary policy stance i.e seeing 4 instead of 3 members voting for a rate hike. Yet overall, with the bank expected to remain on hold, the impact may depend on what happens after rather than the decision itself.

Market implication (GBP): NEUTRAL

02 — BoJ interest rate decision

The BOJ’s interest rate decision is set to take place during tomorrow’s Asian session. The majority of market participants are currently anticipating the bank to hike rates by 25 basis points, marking a return to the bank’s long awaited rate hike cycle. In turn should the bank hike rates by 25 basis points it may provide support for the JPY. Moreover, traders may be looking for clues as to whether the bank is prepared to commit to further rate hikes or if they will maintain their wait-and-see approach. Overall, any implications of further rate hikes may provide support for the JPY.

Market implication (JPY): Bullish

03 — FED hikes rates by 25 basis points yesterday

The Fed yesterday hiked rates for the first time in three years by 25 basis points. The bank’s rate hike was widely expected by market participants with FFF having priced in a rate hike probability of 91%, thus it came as no surprise that they proceeded forward. However, in the bank’s press conference following the decision Fed Chair Warsh noted that inflation is still to high, whilst noting that data has showcased a resilient economy and in particular the labour market. In our view, the Fed Chair’s comments showcase a willingness to tame inflationary pressures in the US economy, which in turn may aid the greenback.

Market implication (USD) : BULLISH

WHAT MATTERS TODAY

BOE monetary policy decision

Time (GMT+2): 14:00

• Expected: 3.75
• Previous: 3.75

Potential market reaction:
Remaining steady may have a relatively muted effect on the pound.

WHAT MATTERS TOMORROW MORNING

BOJ interest rate decision

Time (GMT+2): 05:30

• Expected: 1.0%
• Previous: 1.25%

Potential market reaction:
Could aid the JPY

ASSET FOCUS

[GOLD / COMMODITIES]

Gold appears to be moving in an upwards fashion for the day. Technically, gold’s price appears to be moving in a sideways fashion, supported by the current breaking of our downwards moving trendline and our RSI indicator below our chart, which currently registers a figure near 50, implying a neutral market sentiment. In our view, we would maintain a bearish outlook for gold’s price, and for our bearish outlook to be maintained, we would require a break below our 4180 (S1) support level, with the next possible target for the bears being our 4020 (S2) support line. On the other hand, for a sideways bias we would require gold’s price to remain confined between our 4180 (S1) support level and our 4350 (R1) resistance line.

KEY LEVELS

• Resistance (R1): 4350
• Resistance (R2): 4520
• Support (S1): 4180
• Support (S2): 4020

Technical View: NEUTRAL

CROSS-ASSET VIEW

ASSET CLASS	BIAS	KEY DRIVER
Equities	Bearish	FED
USD	Bullish	FED
Gold	NEUTRAL	US 10YR Yields
Oil	Bullish	Mid-East

RISKS TO THE VIEW

Dovish commentary from Fed policymakers

Dovish commentary from Fed policymakers following the bank’s decision could lead to our view changing, as it would contradict the current narrative which emerged

TRADING SPHERE VIEW

Bearish for Gold

Our base case:
Central banks have resumed their rate hiking cycle, despite the BoE being expected to remain on hold today, the BOJ tomorrow is also anticipated to hike rates. Thus as interest rates continue to rise once again, gold may face downwards pressures.

What would change our view:
The BOJ remaining on hold or the BoE seeing more policymakers opting for a hold

TODAY’S WATCHLIST

01 BoE decision

Disclaimer:

This information is not considered as investment advice or investment recommendation but instead a marketing communication.