Sterling was mixed as the Bank of England worst-case scenario dominated headlines.

Sterling was mixed as the Bank of England worst-case scenario dominated headlines.

Comments from Fed Chair Powell that benchmark rates were just below neutral were perceived as relatively dovish with markets moving to price in just one 2019 rate hike.

The dollar reversed earlier gains and dipped sharply against all majors following the comments as bond yields declined with EUR/USD above 1.1350.

US equities moved sharply higher, although trade concerns maintained a more cautious tone in Asia on Thursday with significant losses in China.

Sterling was mixed as the Bank of England worst-case scenario dominated headlines.

Oil prices failed to gain ground and dipped sharply lower with WTI close to 13-month lows before a slight recovery.

Cryptocurrencies rallied as financial conditions eased.

UK government forecasts confirmed that the GDP outlook would be lower under the government’s Brexit deal compared with staying in the EU. Sterling regained some ground ahead of the New York open with increased speculation that the opposition Labour Party might push for a second referendum if Prime Minister May’s Brexit deal is defeated in parliament. GBP/USD was initially unable to break above 1.2800 while EUR/GBP found support above 0.8800.

All the UK banks passed the latest stress tests results which provided some relief. The Bank of England also published its Brexit modelling data along with the financial stability report. In the worst-case scenario of a disruptive no-del Brexit, there were warnings of a deep recession, surge in inflation and higher interest rates as well as a very sharp Sterling decline of up to 25%. The bank reiterated that these were not forecasts and that it was prepared for all outcomes, although the lurid details inevitably dominated media headlines.

The immediate market impact was limited as dollar moves dominated and GBP/USD moved above 1.2800 while EUR/GBP strengthened to the 0.8870 area as markets monitored political developments and reactions to the Bank of England warning.

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