(18 JUNE 2020)DAILY MARKET BRIEF 2:BoE to announce more asset purchases

In the respect, the Bank of England (BoE) is expected to maintain the benchmark rate unchanged at the historical low of 0.10% and to expand its asset purchases program by at least 100/150-billion pound at today’s monetary policy meeting. With plummeting inflation, rising unemployment and lingering risks of a no-deal Brexit, the bank has room and solid reasons to move towards a more unorthodox policy. While the BoE’s near zero rates and massive asset purchases should push the consumer prices higher in the long run, the inflation will probably not be a cause for concern in the foreseeable future.

Given the expectation of QE expansion is fully priced in, the BoE announcement per se may not move the market significantly unless we see a meaningfully different outcome from the BoE meeting or a hint for more policy easing in the foreseeable future.

Cable is flat near the 1.2550 mark, supported by a mostly flat US dollar across the board. A supportive BoE stance will certainly be perceived as a smoother post-Covid and post-Brexit recovery and have a reassuring effect that could keep sterling above the 1.25 mark against the US dollar.

The EURUSD rebounded after testing the 1.12 support for the second time since last week. The euro owes its present strength to a weaker US dollar. Therefore, any rise in USD appetite could pull the pair toward the critical 1.1160 support, the Fibonacci 38.2% retracement which should distinguish between the actual positive trend and a mid-term bearish reversal. Decent offers are eyed near 1.13.

WTI crude trades in a tight range near $38 per barrel. The EIA data confirmed a 1.2-billion-barrel rise in US oil inventories last week. Meanwhile, OPEC left its 2020 demand forecast unchanged at -9.1-million-barrel per day, with 17.3% plunge expected in the second quarter, indicating that the number states find the actual low production regime sufficient to maintain prices. But prospects that a second-wave contamination could further hit the global oil demand should cap the upside near $40 per barrel.