GBP dropped sharply overnight after BoE’s Carney struck a dovish tone in an interview with the BBC, dampening expectations for a May rate hike. The governor’s comments followed weaker-than-forecast inflation data, a drop in retail sales and mixed labour-market figures this week. Carney commented that he didn’t want to be “too focused on the precise timing” of when rates might next rise and that it was a decision they “will take in early May, conscious that there are other meetings over the course of this year." Ahead of the May MPC meeting, investors will be closely watching the remaining data (PMI, GDP and IP).
Further downside pressure came from Brexit headlines suggesting that negotiations are currently far from a solution on the Irish border (Telegraph). Our traders look to 1.3970 and 1.3890 as the next support levels, while rallies towards 1.4100, 1.4145 and 1.4250 are likely to meet good resistance. In EURGBP, the next resistance comes in 0.8810 which had been a popular level to fade against before the previous move lower.
UK retail sales fell in March following unseasonably low temperatures. Barclays Research expects “this to lead to downside risks to the Q1 GDP advance release next week with data currently signalling 0.2% q/q”. US and Asian equities fell from Wednesday’s highs amid surging US Treasury yields, with the 10-year Treasury yield approaching the psychological 3% level. In FX, the rise in US yields prompted further USD buying leading the Bloomberg Dollar Spot Index to rise for a fourth day this week.