Bank of England in focus after Fed rate hike

As investors reacted to the US Federal Reserve's latest policy decision to end super-size interest rate hikes, the dollar took its biggest tumble in more than a month on Thursday morning in Asia.  

In Wednesday's policy decision handed down by the Federal Open Market Committee, the interest rate was raised by 50 bp to 1%, which sent the US dollar index falling from a five-year high. Despite the largest Fed rate hike since 2000, Fed Chairman Jerome Powell said at a press conference afterwards that the central bank is not considering 75-basis-point moves in the near future.

Fed moderates its aggressive hawkish stance

As part of the balance sheet reduction program, the central bank announced it would start with $47.5bn in June and increase to $95bn a month after three months. Considering they started from a low base and ramped up instead of going for $95 billion straight away, this move could be dovish.

As a result, the US equity market rallied strongly, with the S&P500 and Nasdaq 100 both closing 3% higher. This should lead to a solid start for the European market this morning even as Chinese economic activity in the services sector plunged, with the Caixin PMI falling to 36 for the first time in two years.

Since Japan was on holiday, US Treasurys did not trade, but yields fell. Ten-year bond yields declined to 2.9402%, down from just over 3%.

EU new sanctions on Russia push oil higher

In the meantime, crude prices rose after the European Union detailed some of its plans to ban Russian oil, raising concerns about supply. WTI benchmark passed $107, and Brent rose to $110 per barrel.

As part of President von der Leyen's sanctions proposal, which needs the support of the 27 EU member countries to become effective, Russian crude will be phased out in six months and refined products by the end of 2022.

In addition, all shipping, brokerage, insurance, and financing services provided by EU companies for Russian oil transportation are to be banned in a month.

Aussie new daily gains record

The riskier Pacific currencies surged, and the Australian dollar experienced its biggest one-day percentage gain since late 2011. After Powell's press conference, traders revised their predictions on whether the Fed will remain ahead of the Reserve Bank of Australia, which hiked its interest rate to 0.35% on Tuesday.

According to data released earlier in the day, construction approvals fell 18.5% month-on-month in March 2022, imports decreased 5% with no growth in exports, and the trade balance reached $6.66 billion.

Events of today

The Bank of England will announce its policy decision later on Thursday. Rates are expected to be raised to 1.00%, the highest level in 13 years. 

Investors are also awaiting the latest initial jobless claims, which are expected to increase from 180k to 182k. 

Later today, BoE governor Bailey will speak.