By Craig Erlam
The Bank of England hiked interest rates by another 25 basis points on Thursday, taking the base rate to 4.5% while making significant tweaks to their economic forecasts.
The MPC is now of the belief that the economy will avoid recession this year and significantly revised up its GDP forecast, albeit to mild growth.
What’s more, its forecast for inflation was also higher, which may indicate it will have to go further and hold for longer in order to get back to target. That said, markets are pricing in one or two more hikes before the end of the tightening cycle before reversing course next year.
All things considered, the situation has changed significantly over the last three months and I expect it will again over the next three, meaning the projections in August could look very different.
Between the economic data and further developments in the banking system, most notably in the US, we’re going to learn a lot over the next few months at which point we may have a much clearer view on the overall outlook.
How long will OPEC+ tolerate these oil prices?
Oil prices slipped again on Thursday after running into resistance around the December-to-March lows earlier in the week. This is similar to what we were seeing prior to the OPEC+ intervention last month and with a little under a month to go until the next, we may see it settle below that range.
Whether the group will tolerate these levels is another thing, especially if we see the lows around $70 in Brent tested again. They’ve been keen to send strong messages before and you wouldn’t put it past them to send another so soon after the last.
New gold records on hold?
Gold’s quest for new records may be on hold for now after recent inflation data failed to give it the kind of boost some may have hoped for.
The rally was already running on fumes, so something more significant than we’ve seen was always likely to be needed.
A Fed pause now looks all-but-done in June, but traders are thinking beyond that to when the central bank can feasibly justify reversing course. The next couple of months will be key on that front but a slight softening in inflation and a tick higher in jobless claims hasn’t done that any harm.
Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA
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