FX round-up: MPC's Vlieghe may vote for rate cut at next BoE meeting, some say

Sterling beat a hasty retreat going into the weekend and next week's meeting of the Monetary Policy Committee, weighed down by weak data in the UK and falling yields on Gilts.

Versus the US dollar, the pound added a 0.40% drop to 1.4427 for a 1.3% decline for the week as a whole, as purchasing managers indices for construction, manufacturing and services in April pointed to stalling growth in the second quarter, according to economists at Barclays and Pantheon Macroeconomics.

Against the single European currency the pound was off by 0.38% to 1.2652 by the close of trading and by another 0.52% to 1.2652 in its cross against the Japanese yen.

Most economists expected the MPC to stay put on both interest rates and the size of its asset purchase facility when it met on 12 May, with no dissenting votes.

However, over the weekend analysts at Bank of America-Merrill Lynch broke ranks with most observers, reportedly telling clients that at least one - if not two - UK rate-setters might vote for a cut in Bank Rate as soon as next Thursday.

Their opposite numbers at Barclays also believed MPC member Gertjan Vlieghe might be itching to vote a for cut, but they believed it unlikely that he would do so before the 23 June vote on whether Britain should remain inside the European Union.

"Although the BOE has highlighted previously that they intend to interpret any data between now and the referendum with caution, recent releases have been considerably weaker than both we and the BOE were expecting. We believe one or two members may see cutting rates as a sensible insurance policy," BofA's Rob Wood and Athanasios Vamvakidis said.

Acting as a backdrop, the US dollar spot index finished the Friday session up by 0.12% to 93.888, for a 1.5% gain over the week from one-year lows.

To take note of, Citi's widely-followed Economic Surprise Index on Friday fell back to its lowest levels since last February.

Some market-chatter referenced so-called 'oversold' technical levels in the greenback for the weekly move; however, for Friday at least Capital Economics pointed to the higher than expected wage gains revealed by the April US jobs report.

Be that as it may, several of the most influential brokers, including Goldman Sachs, on Friday in fact pushed back their call for the next interest rate hike Stateside from June to September.

Commodity currencies were again on the backfoot versus the US dollar.

The greenback gained 0.44% to 1.2909 against the Canadian Loonie and another 1.33% to 0.7366 in its cross versus the Aussie.

Australia was the only currency against which the US dollar had gained since the Fed's last meeting in March, Capital Economics pointed out.

In the opinion of the think-tank, that was because Australian so-called two-year overnight index swap rates were the only ones which had fallen or at least declined more quickly relative to their equivalent in the US.

"Nonetheless, we continue to think that the US dollar will recover through the end of next year, as the FOMC tightens by more than investors assume while monetary policy elsewhere generally remains at least as loose as they envisage," John Higgins at Capital Economics said in a research note sent to clients.

Higgins was forecasting that by the end of 2017 the US dollar would "strengthened significantly" against both the euro – to $1.05/€ from $1.14/€ – and the yen – to ¥120/$ from ¥107/$."