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Sterling stagnates ahead of QIR

It was once again a rather mixed session in Asia. The slide in US indices yesterday and crude oil surrendering some of its recent gains helped to set the tone and the softness in risk sentiment is very much still apparent. The dollar index is consolidating, pulling back to 94.00 but is still the better performer overall compared to the rest of the G10 space.

The Nikkei  managed to buck the trend, extending its rally for a 4 day.
It would seem  that the Bank of Japan governor has more power in his words than in NIRP. His comments regarding potential FX intervention have certainly been more effective in keeping the yen weaker than any recent policy move. Former senior MOF official and PM Abe's aide Ito: has also stated that the BOJ is likely to ease either in June or July with eye on Q1 GDP as well as the outcome of G7 summit.

Oil is marginally lower, easing back from the highs of the morning and while we have now come to expect a degree of positive correlation between oil and equities, the markets are clearly focussed elsewhere this morning.
Base metals are higher with copper adding to yesterday’s gains, rising 0.7% in early trade. Precious metals are less in demand with gold peeling back some of its recent gains this morning.

It’s Super Thursday and markets are already manifesting caution ahead of the event risk.
Sterling has been rather range bound over the past week, with a comparatively small trading range of around 0.8% as opposed to the average weekly range of around 2.4% since the year began so we may well get the full force of the average move in very short order today. For the time being, GBPUSD is holding above the 1.44 mark and really needs to hold above 1.4370 is any recovery in sterling is to be heralded.
It would be a surprise to see any change to policy at this point and the BOE is certainly in recent times not known for its surprises. Interest rates are expected to remain on hold but it will be interesting to see if anyone has voted for a cut despite consensus for a 0-0-9 vote. It’s certainly unlikely anyone will be seeking to tighten monetary policy at this juncture. Still, even with no change in votes, the immediate bias for sterling is lower.

What will be most interesting are the economic forecasts. We get the BOE minutes, the quarterly inflation report and Mark Carney setting down the ramifications of both EU referendum outcomes. The MPC will likely attempt some neutrality in tone but given recent data, Q2 growth is likely to be revised back from 0.5%.