BoE cautions on Brexit risk


13 May, AtoZForex, Lagos – The BoE cautions on Brexit risk. As heightened uncertainty ahead of the EU referendum is starting to have more of a negative impact on economic growth with disappointing April UK Services PMI as the latest evidence. Since the last BoE quarterly outlook in February, the GBP has devalued, Crude oil prices have risen and markets have pushed expectations of the first interest rate hike out until mid-2019.

BoE cautions on Brexit risk

As expected, the Bank of England opted to keep rates at around 0.5%, with all members of the monetary policy committee (MPC) voting to hold rates at current record low levels. In his strongest warning yet about the June 23 EU referendum, governor Mark Carney said a Brexit vote could cause a U.K. recession and that any monetary-policy response would take some time to work. “A vote to leave the EU could have material effects on the exchange rate, demand and supply potential,” Carney told a press conference in London. The consequences “could possibly include a technical recession.”

The pound, however, ended the day almost flat against the dollar. A continuation of the bearish trend is expected at this point, with strong levels ahead around 1.4300.

For the day, economic reports from the US dominate the calendar.

US April retail sales data

Many analysts now expect that the Fed will again put off raising rates in June, after the less than impressive said jobs report on Friday. And the latest unemployment claims report depicts an increase of 20,000 from the previous week to 294,000. This is the highest level for initial claims since February 28, 2015 when it was 310,000. The Fed clarified that its next monetary policy moves will be majorly inspired by economic data. The core retail sales and US April retail sales figures are forecast to come at 0.6% and -0.3% respectively. As the core retail sales which excludes automobiles is expected to show a jump from last month’s figures. We also have the producer price index (PPI) data and the Prelim UoM Consumer Sentiment due for release on Friday. The dollar has however stayed firm for the week so far.

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