The Bank of England gets handed the central bank policy decision baton on Thursday with money markets pricing in a 25bps rate hike. With UK inflation stuck in double digits and wage growth strong, the MPC have little choice but to carry on hiking. That said, price pressures are forecast to drop sharply with punchy food and core goods inflation not viewed as long lasting. Governor Bailey will probably impress that the bank remains data dependent, though if the accompanying bank projections predict upside risks to prices, then a further hike is possible in June and GBP/USD can continue on its upward path beyond 1.26.
US inflation released midweek is set to spark more volatility and inform investors about the likely direction of the FOMC and monetary policy. Markets think last week’s 25bp rate hike could be the last in the most aggressive tightening cycle seen in living memory. US banking jitters don’t seem to be going away anytime soon with several regional banks still under pressure as depositors flee to much larger financial institutions.
Even after a knockout non-farm payrolls report, the dollar remains under pressure. The long and varied lags involved in the 500bps of Fed rate rises are yet to be fully felt, while rapidly tightening lending and credit conditions and standards will crimp economic activity in the months ahead. We get a look at this impact in the Fed’s Senior Loan Officer Opinion Survey (SLOOS) released on Tuesday. This will be a gauge about lending conditions and will not likely make for very comfortable reading. The latest US inflation data is expected to show price pressures still running well above the Fed’s 2% target. But the annual reading is set to slow possibly below 5%, having peaked at 9.1% in the middle of last year.
Here are the major risk events next week:
