BoE takes rate rise off the table

Mark Carney used last week's quarterly Inflation Report (QIR) to successfully dampen market expectations of a rate rise in the next six months or so, reaffirming the Bank of England's continuing dovish stance in spite of the improving economic picture across the UK.

The key change in language was towards the suggestion that when rate rises come they will be gradual and limited in scope, which is an important development in forward guidance but was lost somewhat after rate rises this year were put on ice by the MPC. Sterling fell across the board after Mr Carney's comments as the market adjusted to a longer period than previously thought of rates at 0.5%.

UK inflation and GDP data is out over the coming days and is expected to show the positive picture outlined by the bank last week with benign inflation of 0.3% and above trend growth of 0.8%. The MPC also releases minutes from its last meeting and it is expected to show a slight divergence in members voting preferences despite the highly dovish message from the QIR with at least one member voting for a lift in rates.

The Federal Reserve also releases its minutes from last month's meeting on Wednesday evening, but little news is expected in the release from what was a bit of a bore-fest the first time around. The focus of the foreign exchange markets remains on the ECB and the prospect of further easing in June so major movements will likely be in the euro crosses over the coming days.

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