UK Inflation Keeps BoE on Cautious Path, Reports Reuters

Here’s a look at the upcoming day in European and global markets.

Following the much-anticipated rate cut by the Federal Reserve, attention now shifts to the Bank of England (BoE), although Thursday’s decision is not expected to make significant waves.

Unlike the Fed, the BoE cannot claim “greater confidence” regarding the easing of domestic inflation, especially with services inflation in the UK remaining high at an annual rate of 5.6%.

Consequently, it seems likely that the BoE will keep rates steady at 5.0% during its announcement.

Policymakers at the BoE are expected to maintain a cautious approach regarding any rapid easing measures.

In the meantime, stock futures are signaling a positive start for Europe, with indexes experiencing a notable rise, reflecting the continued enthusiasm from investors following the Fed’s significant rate cut, which is affecting markets in Asia as well.

However, the response in the currency market displayed a classic “buy the rumor, sell the fact” scenario. The dollar managed to recover some losses against most currencies, showing a surge of over 1% against the yen at one point.

Attention on Thursday may also shift from the BoE’s rate decision to its plans for reducing its balance sheet of British government bonds, which expanded significantly during the pandemic. Market expectations indicate targeting a further reduction of £100 billion (approximately $132 billion) over the next year.

This could positively impact the bond market, as maintaining this target would effectively reduce active gilt sales by 75% due to a considerable amount of maturing debt that would roll off automatically.

Additionally, there was a notable decline in Chinese bond yields on Thursday, amid expectations that the Chinese government might soon announce more policy easing measures to support its struggling economy, now that the Fed has concluded its latest actions.

Stocks in Hong Kong and China also recovered from earlier losses, trading higher in anticipation of additional stimulus measures.

Key market developments to watch for on Thursday include:

• Bank of England rate decision
• U.S. weekly jobless claims

(Reporting by Rae Wee; Editing by Edmund Klamann)