Overnight Headlines

*USD ended mixed with commodity-$s outperforming

*US equities consolidated after two days of strong gains

*Vix back down to near 16, below long-term average

USD closed mixed with DXY printing a doji candle below 92 and off recent highs around 92.37/40. AUD and NZD were the leading majors up 0.3% while EUR/USD slipped from its high of 1.1970. USD/JPY briefly made another new top this morning at 111.12 having closed at 110.96. There is still some confusion about the Fed’s intentions with two Fed officials saying inflation pressures may last some time, slightly contradicting Chair Powell’s comments earlier in the week.

US equities traded between gains and losses throughout the session before the Dow and S&P500 ended modestly lower. Tesla pushed the Nasdaq to another fresh record high. Defensive utilities were again the big laggard. Asian stocks are largely mixed too, with US and European futures in the green.

Market Thoughts – BoE next up, with a hawkish twist?

After the excitement and subsequent fireworks surrounding the Fed’s dot plot last week, it’s the turn of the Bank of England to update us on their policy outlook at midday today and where the UK sits in the global rate hike queue. With no updated forecasts until the next meeting in August, the MPC is most likely to stand pat and not shift current market expectations.

Rate markets continue to see the first hike to roughly 0.25% by the middle of next year. The majority of the MPC are expected to stick to their view that inflation is transitory while aware that headline recent economic data has been better than the BoE forecast. With uncertainty over the Delta variant and the grand reopening pushed back to mid-July, no major policy changes are expected at this interim meeting. Some market watchers are hinting at a more hawkish skew partly due to rising price pressures above the bank’s 2% target so there could be mild disappointment if the MPC are more cautious.

Chart of the Day – Cable strongly off the lows

GBP/USD is up 1.25% this week although it remains 1.65% lower on the month. The pair is currently trading around the midpoint of yesterday’s range and on its fourth straight day of gains. After last week’s selloff broke through the 100-day SMA and the lower Keltner channel, the pair’s daily RSI touched a rarely seen 30 level. A strong bounce has ensued and an advance above the psychological 1.40 level should further encourage the bulls to push towards last week’s high at 1.4133 if the Bank of England does portray a more optimistic outlook. A strong weekly close above 1.3964 would look like a false break of the long-term trendline. Support rests at the weekly lows around 1.3786/91 if the MPC want to buy more time.