FTSE Slips as Investors Trade Cautiously Ahead of BoE

Fiona Cincotta
By :  ,  Senior Market Analyst

Taking the lead from a lower close in the US, the FTSE is seen opening on the back foot on Thursday. With commodity stocks struggling against a stronger dollar and computer and software stocks mirroring declines on the Nasdaq, the FTSE has dropped 0.4% in the first hour of trading.

Volatility was certainly lower in the US session, so we expect that to be repeated in Europe this morning. However, it is worth noting that when we see 1000-point intra day moves like we have been seeing in recent sessions, it will take time for take time for normality to return. Volatility like what we have seen can be difficult and painful to trade, so jitters are to be expected in the short term which will be reflected in market movements.

US 2 year budget deal boost dollar

Over on the forex markets a stronger dollar and caution from investors ahead of the BoE’s Super Thursday releases means GBP/USD has also started the day on the back foot as it continues to trade sub $1.39.

Increased dollar strength comes following an announcement by the US Senate for a 2-year Budget deal, which should bring an end to end the squabbling over fiscal issues which has plagued Congress in recent years. The $300 billion deal would lift caps on defence spending and some government spending, however it would also add to the US deficit which is already ballooning under the Republican tax reform.

The dollar index moved convincingly higher in the previous session and is seen extending this gains this morning as it pushed meaningfully through 90.00.

All eyes to BoE

GBP/USD sees traders nervous ahead of the BoE’s triple whammy of releases at 12:00 GMT. No rate change is expected and instead investors will look closely to the quarterly inflation report. Whilst traders had been fairly confident last week of a more hawkish Mark Carney, moving closer to the release and confidence appears to be lagging. There is no doubting the impossibly difficult job that the Mark Carney & Co. face, attempting to forecast future inflation and growth with such poor visibility due to Brexit.

GBP/USD is trading $1.3860, down 0.1% in early trading. Immediate support can be seen in the region of $1.3840. Any disappointment from Carney & Co could see GBP/USD move through this level as it head back to $1.38. On the upside $1.40 remains the clear psychological target on the upside.

US pointing to mixed start

Looking across to the US, the futures are pointing to a mixed open, but within a more normal trading range. Economic data will come in the form of jobless claims, one of the last pieces of influential US data before traders look towards the weekend. A strong reading could help cement the dollar rally as investors will continue to gain confidence over a Fed hike in March.

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