As anticipated, the Bank of England (BoE) maintained its Bank Rate at 5.25% yesterday. However, the hold leaned towards a dovish stance due to the Monetary Policy Committee's 8-1 split in voting. Notably, the two previously hawkish members aligned with the majority to keep rates steady this time, whereas Swati Dhingra once again advocated for a rate cut. Consequently, GBP/USD experienced its most significant decline in over a month, and GBP/EUR dropped to its lowest point in three weeks. This morning's UK retail sales data slightly exceeded expectations but remained stagnant in February, providing minimal support to the pound.
In a surprising move, the Swiss National Bank (SNB) reduced its main policy rate from 1.75% to 1.50%, marking the initiation of the monetary policy easing cycle and making it the first G10 central bank to do so. The SNB's rhetoric, coupled with significant downward revisions to inflation forecasts, strongly indicate the likelihood of another cut in June. Consequently, EUR/CHF surged by 1.1% to reach a 7-month peak of CHF0.9787. However, the extent of further gains hinges on the pace at which the European Central Bank (ECB) follows suit. In contrast, Norway's central bank maintained its benchmark interest rate at a 16-year high of 4.50%, signalling a plan to reduce it only once by the end of the year. Initially, the Norwegian crown appreciated to NOK11.51 against the euro on ostensibly hawkish comments, but later declined to a 4-month low due to core inflation remaining nearly double the rate observed in the common bloc.
The USD experienced its most significant daily increase since early February due to disappointing data from Europe and a cautious tone from the Bank of England (BoE). Nevertheless, the USD's responsiveness to robust macroeconomic indicators has been uninspiring, indicating investors' evident preference against the USD. The USD's reaction to incoming data appears asymmetric, with weaker data having a more pronounced effect on the currency than positive surprises. This doesn't imply that the USD cannot appreciate from its current levels, especially considering expectations for higher inflation in the US compared to the Eurozone and UK. However, the threshold for substantial USD appreciation in response to positive data surprises has elevated in recent weeks.
