ForexLive European FX news wrap: BOE cuts bank rate as expected but surprise Mann vote

Headlines:

• BOE cuts bank rate by 25 bps to 4.50%, as expected
• BOE governor Bailey: We expect to be able to cut the bank rate further
• BOE governor Bailey: There was a bit of a debate about the world “careful”
• BOE governor Bailey: I don’t use the word “stagflation”
• The bond market looks to have made up its mind on the week
• Weekly update on interest rate expectations
• ECB’s Cipollone: There is still room for adjusting rates downward
• BOJ’s Tamura: The pace of rate hikes may not necessarily be once every half a year
• BOJ’s Tamura: It is difficult to specify the terminal rate at this point
• UK January construction PMI 48.1 vs 53.4 expected
• Germany December industrial orders +6.9% vs +2.0% m/m expected
• Eurozone December retail sales -0.2% vs -0.1% m/m expected
• Switzerland January seasonally adjusted unemployment rate 2.7% vs 2.7% expected
• US January Challenger layoffs 49.79k vs 38.79k prior
• China says willing to resolve trade issues through dialogue and consultation
• USTR nominee Greer calls for active, pragmatic trade policy to foster growth
• Trump says Gaza Strip would be turned over to the US when the dust settles

Markets:

• JPY leads, GBP lags on the day
• European equities higher; S&P 500 futures up 0.2%
• US 10-year yields up 2.8 bps to 4.448%
• Gold down 0.1% to $2,863.83
• WTI crude up 0.4% to $71.32
• Bitcoin up 1.5% to $98,371

The BOE was the main highlight on the session and although the central bank delivered as expected, the pound sank lower following the decision. It comes arguably after a surprise in the bank rate vote. All members voted for a rate cut but Dhingra and Mann were ones to have voted for a 50 bps rate cut instead.

While Dhingra is a well-known dove, the surprise comes from Mann’s vote as it wasn’t just too long ago that she was calling for the BOE to hold rates for longer.

GBP/USD was already down amid a firmer dollar and a softer UK construction PMI, hovering around 1.2420 ahead of the decision. But after, the pair fell to 1.2360-70 levels and is keeping thereabouts now.

Bailey’s press conference is going as expected, with him clarifying on the new language used in the forward guidance i.e. introduction of the word “careful”. It doesn’t change the market preconception though, with a March rate cut still not in consideration as traders are looking to May for the next move.

Besides the BOE decision, there wasn’t too much else as broader markets are still settling down after Trump’s tariff threats from earlier this week.

The dollar is seen bouncing back a little with EUR/USD down 0.4% to 1.0360 and AUD/USD down 0.4% to 0.6260. Meanwhile, USD/CAD is seen up 0.3% to 1.4350 and USD/JPY largely flattish around 152.30-60 levels during the session.

This comes despite risk trades holding up with equities looking to nudge higher again but for the dollar, a steadier mood in the bond market is at least helping for now. 10-year yields in the US are a touch higher after the dive yesterday but we’ll see what happens when Wall Street comes in later.

US data will come into focus again as we look towards the latter stages this week, with the weekly jobless claims coming up later and hte non-farm payrolls data tomorrow.

This article was written by Justin Low at www.forexlive.com.