– Bank of England raises rates 0.25%, blames inflation
– Global equity markets fall, spooked due to Meta (FB) performance
– Negative risk sentiment lifts US dollar
USDCAD Snapshot: Open 1.2711-15, Overnight Range-1.2672-1.2710, previous close 1.2669, WTI open $86.84, Gold open $1803.13
The Canadian dollar sank slowly overnight after a poor earnings report from Meta (formerly Facebook) spooked traders, who were already nervous due to the risk of sharply rising US interest rates.
Facebook reported massive quarterly revenue of $333.67 billion, beating analysts’ estimates. Still, it was their Q1 guidance suggesting revenue would drop to $27-29 billion that fueled the 20% drop in its share price in after-hours trading.
The results spooked Asia traders and sent Japan’s Nikkei tumbling 1.06% and Australia’s ASX 200 down 0.14%. European bourses were on the defensive due to the Bank of England and ECB meetings due today. Gold and oil prices fell while US Treasury yields inched higher.
Yesterday, BoC Governor Tiff Macklem addressed the Standing Senate Committee on Banking, Trade and Commerce. It was an encore performance of his Monetary Policy Report press conference, and Mr Macklem repeated the following points.
First, the emergency monetary measures needed to support the economy through the pandemic are no longer required and they have ended.
Second, interest rates will need to increase to control inflation. Canadians should expect a rising path for interest rates.
Third, while reopening our economy after repeated waves of the COVID-19 pandemic is complicated, Canadians can be confident that the Bank of Canada will control inflation. We are committed to bringing inflation back to target. He said the country no longer needed pandemic emergency measures. He predicted a rising path for Canadian rates, and that the BoC was committed to controlling inflation.
Those comments should give the Canadian dollar some support as the BoC is expected to raise interest rates higher than the Fed.
EURUSD retraced earlier gains ahead of the ECB monetary policy meeting. Analysts predict President Lagarde will acknowledge the latest surge in inflation, repeat that policymakers remain vigilant, and leave policies unchanged. A dovish result puts 1.1100 in play, while a hawkish shift would see a test of 1.1300.
GBPUSD surged from 1.3540 in Asia to 1.3624 in early New York after the Bank of England did what was expected and hiked rates 0.25%. Prices retreated quickly and are at 1.3590 in NY. The statement said that the UK economy continues to recover and blamed rising energy costs for inflation rising above their 2.0% target, which is expected to rise to 7.0% before retreating.
USDJPY rallied due to higher Treasury yields, but safe-haven demand for yen was a drag on gains.
AUDUSD and NZDUSD retreated as risk sentiment soured. Australia trade and Services PMI reports were not a factor.
US ISM Services PMI, weekly jobless claims, and factory orders reports are on tap.