UK equities climbed over two consecutive sessions this week as a fresh batch of softer economic data eased fears of imminent interest rate hikes by the Bank of England, providing a ripple effect that also lifted sentiment across the cryptocurrency market.
On Tuesday, the UK tax office reported that payrolls in April fell by 100,000 compared with March, while the unemployment rate rose to 5% in the first quarter from 4.9% previously. The weaker labour market reading prompted analysts to dial back expectations of monetary tightening. Sanjay Raja, chief UK economist at Deutsche Bank, said the data would likely “stop the MPC in its tracks.” According to LSEG data, traders now price in only a 29.1% chance of a rate hike at the BoE’s June meeting.
The following day, consumer price inflation for April came in at an annual 2.8%, down from 3.3% in March and below the 3.0% consensus. That further softened the outlook for aggressive policy. James Smith, developed markets economist at ING, noted that markets “are overestimating the Bank of England’s willingness to tighten policy,” amplifying the narrative that central bank restraint is fading.
While some analysts warned that inflation could reignite later in the year due to geopolitical energy price risks, the immediate reaction in risk assets was positive. A backdrop of reduced rate hike expectations typically relieves pressure on growth-sensitive investments. In equities, the FTSE 100 and FTSE 250 both advanced, with banking and retail shares leading the charge. For cryptocurrencies, the macro signals were equally constructive.
The pullback in rate hike fears tends to weaken yields and fiat currencies relative to hard assets, encouraging inflows into Bitcoin and Ethereum as “digital gold” and decentralized store-of-value plays. With traditional markets showing relief, crypto traders interpreted the data as a green light for renewed risk appetite. The macro tone boosted major coins in early trading, underscoring the continued correlation between crypto and traditional financial markets when it comes to central bank policy expectations.
