- The Pound Sterling rises sharply to 1.2540 against the US Dollar (USD) due to upbeat preliminary Q1 GDP growth and strong factory data. Apart from the upbeat Q1 GDP data, the UK ONS showed that monthly Industrial Production rose by 0.2% in March against expectations of a decline of 0.5%. Annually, the Industrial Production grew at a higher pace of 0.5% from the estimates of 0.3%.
- Monthly Manufacturing Production surprisingly grew by 0.3% as economists anticipated a contraction of 0.4%. Annually, this indicator increased at a stronger pace of 2.3% against expectations of 1.8%.
- The situation of strong US factory data and easing inflationary pressures is favorable for the Bank of England to bring down interest rates from their current levels of 5.25%. On Thursday, the BoE kept interest rates steady for the sixth straight meeting. However, the overall message from the central bank suggested that the BoE is gradually moving to policy normalization.
- Out of the nine-members-led Monetary Policy Committee (MPC), BoE policymaker Swati Dhingra and Deputy Governor Dave Ramsden voted for a 25 basis points (bps) rate cut to 5%. Financial markets were divided over Ramsden’s vote as he supported a neutral stance on interest rates in the policy meeting in March. But his commentary in April suggested that he is confident about inflation returning to the 2% target sooner.
- Also, the commentary from Andrew Bailey on interest rates was more dovish than expected. Bailey didn't rule out speculation for BoE reducing interest rates from June. He said, "A June bank rate cut is not ruled out or planned". For the entire year, Bailey said, "It's possible we will need to cut rates more than currently priced into market rates."
- Meanwhile, the US Dollar Index (DXY) has rebounded slightly after a sharp fall to near the crucial support of 105.00. The US Dollar is still under pressure as higher-than-expected individuals claiming jobless benefits for the week ending May 3 deepened concerns over United States labor market strength. The US Department of Labor showed that Initial Jobless Claims were the highest since November 10 week, showing 231K against the consensus of 210K and the prior reading of 209K.
- Going forward, investors will shift focus to the UK’s labor market data for three months ending March and the US Consumer Price Index (CPI) data for April, which will be published next week.
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