The Sterling tumbled on Thursday after the Bank of England raised interest rates by 0.25% to a post-financial crisis high. The hike, which was initially planned for May prior to the first quarter slowdown, has not come without it criticism due to the mixed data, temporary factors driving some numbers and the uncertain outlook, associated with Brexit.
Trade concerns between the world’s largest two economies returned to haunt markets on Thursday after President Trump ordered his administration to consider more than doubling previously proposed tariffs on $200 billion worth of Chinese goods. The new proposed tariffs of 25% dragged Asian equities heavily during morning trade, sending the Hang Seng Index to its lowest level since September 2017.
Global equity markets are lower this morning and we cannot say we are surprised. In fact, we warned of this exact scenario; U.S and China trade tensions will build in the headlines once we got through Apple’s earnings and the Fed drift. The Bank of England hiked interest rates 25 basis points this morning as expected, but a warning of economic headwinds has sent the Pound a penny lower.
The BoE looks almost certain in our view to raising interest rates for the second time since the global financial crisis. With inflation already being above target, it can’t justify holding rates this low as even modest economic growth in the coming months is likely to generate further inflationary pressures.
The U.S. petroleum markets were just trying to adjust to a surprise increase in U.S. crude supply, when The Wall Street Journal reported that the Trump Administration is considering more than doubling proposed tariffs on a further $200 billion worth of Chinese goods to 25%, up from an original 10% tariff that was put in place before.
As anyone who was paying a modicum of attention could easily tell you, the Federal Reserve was never going to make any changes to monetary policy at today’s meeting. Instead, traders were tuning in to see any changes to the central bank’s statement and extrapolate what that may mean for interest rates moving forward.
The dollar’s choppiness has been a dominant theme for several weeks now, but as we come to the business end of this week, it could finally make a more decisive move in one or the other direction. The indecisiveness is a reflection of a tired bullish trend: market participants have been piling in on the greenback for several months amid an improving macro picture in the United States and speculation over further rate hikes from the Federal Reserve.