FTSE breaks below 7000 ahead BoE weighed down by trade war fears

The FTSE has started Thursday lower following the Fed rate decision last night, further concerns over trade wars and ahead of the Bank of England rate announcement that midday.

The FTSE has started Thursday lower following the Fed rate decision last night, further concerns over trade wars and ahead of the Bank of England rate announcement that midday.

As was widely expected the Fed raised interest rates by 25 basis point. However rather than giving the markets a boost, there was a decidedly dovish response to the hike and to Jerome Powell’s not unambiguously hawkish press conference. 

The Fed failed to lift the future path of hiking for 2018, something, keeping the outlook at 3 rises across the year, rather than the 4 some trader had been optimistically hoping for. 

Despite Powell remaining upbeat over the economy, Powell’s slightly downbeat comments over inflation, wages and trade concerns weighed on the dollar heavily, sending GBP/USD to a monthly high, USD/JPY to 105.50 and a weaker close across the board on Wall Street.

A more hawkish BoE?

The pound is trading higher this morning as we head towards the BoE decision; the centre point of this pivotal week for sterling. There will be no press conference at this meeting, so investors will extract all that they can from the voting spilt and the statement.

The BoE are broadly expected to keep rate on hold. However, there has been growing optimism that a late spring hike could be on the table. The markets are currently pricing in a 66% probability for a May hike, which shoots up to 75% in June. 

Any hawkish slant from the BoE in light of clearing headwinds, thanks to the Brexit transition deal and wages increasing above inflation, could give the pound an extra boost pushing GBP/USD towards $1.4280, a late Jan high. 

Traders will be particularly keen to see a voting split other than 9-0, for confirmation that the more hawkish MPC members are already setting their sights on a hike.

On the downside, failure by the BoE to fan spring hike optimism could see GBP/USD test $14150 in the near term before looking towards support at $1.4070.

Trade war fears resurface

After central banks have done a fine job of attracting trader attention away from Washington this week, news that Trump is turning up the heat on China with new trade curbs has sent a chill through the market, weighing on risker assets. 

The White House is drawing up a plan to slap tariffs on imports from China to the value of $30 billion, as US protectionism hits a new level; stoking fears of a strong retaliation and an all-out trade war.

With a stronger pound, fears of a trade war and a lower close in the US, it is hardly surprising that the FTSE is struggling in morning trade. The FTSE has slipped below the key psychological level of 7000 and will look to target 6970 on continued weakness.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.