Super Thursday for stocks

Super Thursday lived up to its name, although for the pound it was anything but.  But it has been a Super Thursday for global stocks as investors’ worries over interest rate rises eased further. Today both the Bank of England and Reserve Bank of New Zealand proved to be more dovish than expected while signs that US inflation is cooling down reduced the prospects of quicker tightening from the US Federal Reserve.

Dovish BoE hits pound

The Bank of England decided to hold its monetary policy stance unchanged in a 7-2 vote, which was a touch more dovish than had been expected. Sterling gave up its entire earlier gains before staging a short-lived bounce as Mark Carney delivered the inflation report. He didn’t say anything too surprising, but the BoE Governor did mention that the first quarter economic and inflation weakness was temporary and that underlying growth was more resilient. He said that the BoE has seen domestic inflationary pressures strengthen and that there's been ‘widespread evidence’ of tightening in labour market. But his comments fell on deaf ears and soon the beleaguered currency took another pounding which saw the GBP/USD drop to near 1.3450.

Dovish RBNZ weighs on kiwi

The pound was not the only currency which took a beating on the back of central bank inaction. Overnight the Reserve Bank of New Zealand also kept its policy unchanged as had been widely expected. But the New Zealand dollar fell as the central bank lowered its GDP and inflation forecasts, and said that it expects to keep rates at 1.75% for a “considerable time” and that the next move could be “either up or down.”

CPI points to weakening price pressures in the US

Meanwhile the US dollar fell as more signs emerged of US inflation cooling down, with the latest sign being a soft Consumer Price Index reading, which followed lower-than-expected Producer Price Index on Wednesday and weak wage growth last week.  US CPI rose 0.2% in April, missing estimates of 0.3%. Core CPI also missed the mark at 0.1% month-over-month. The dollar fell on the back of the data, most notably against the euro and gold.

Dow in technical breakout

The prospects of lower rates for longer further fuelled the global stock market rally. UK listed stocks turned positive in the aftermath of the BoE as the pound got hammered, propelling the FTSE 100 closer to its previous record high. US stocks meanwhile pushed further higher as the soft inflation reading lowered the prospects of three further Fed rate increases this year.  As a result, the Dow was able to further extend its breakout above the trend line. The bulls now need the index to make a higher high above the previous swing point of 24860, to confirm the reversal. They need to defend the broken resistance levels, now support, at 24585 and 24475 in order to maintain control. However if these levels break and the bears manage to push the index below the breakout point at 24325 then this would be a bearish development.

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