Today at 13:00 the Bank of England's decision on interest rates will be published. There will also be the quarterly inflation report and the minutes of the Bank of England meeting. Earlier, investors were wondering if and when the Bank would introduce negative interest rates. Now that rhetoric may be different.
It is expected that the Bank of England may leave the main interest rate at a record low of 0.1 percent at its first meeting of 2021, and the size of its bond-buying program will continue to be £875 billion.
However, investors will be keeping a close eye on the BoE's quarterly forecasts and the results of the negative interest rate feasibility study. The central bank is not expected to cut rates below 0 percent in the near future, but it is unlikely to rule them out.
This is key news for the currency market, as the pound seemed to gain in value thanks to the push back of the possibility of negative rates in the UK. Money markets have backed away from betting on a rate cut by the BoE, with a downward move of 10 basis points now not seen until May 2022. Traders will also be looking out for forecast updates in the near term as the UK remains in national quarantine. The Bank of England is likely to raise its forecast for 2020 but lower its forecast for the following year.
Oil is getting more expensive and there is no end in sight to this trend
Oil on Thursday still seems to be rising in price, surpassing $56 per WTI barrel at one point. The price rise may continue as Wednesday's EIA data showed an unexpected drop in US crude inventories by 994,000 barrels last week to 475.7 million barrels. This is the lowest value since March.
As a result, both WTI and Brent crude oil are near yearly maximums. On the supply side, the OPEC+ Joint Ministerial Monitoring Committee meeting ended with no changes to production quotas for February and March, in line with market expectations. On a weekly basis, the price of WTI crude oil has been pushing up only with small corrections since mid-November, when it cost less than $34 per barrel.
The main currency pair comes out of the range
From the key events on the currency market, it is worth noting the changes on the main EUR/USD pair. The rate fell below 1.2000 for the first time since December and thus the previously assumed corrective scenario may be implemented.
We have been pointing out for some time the possible overvaluation of the euro against the dollar and the difficulty in maintaining the level of 1.2300-1.2400, thus theoretically opening the way for a correction towards 1.1700-1.1600, where the lows of September and October are located, which could be a potential support area..
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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