Another day and another soft number from the US, with the ADP payrolls report coming in lower than expected. As a result, we saw markets increase the odds of a rate cut in September from 75% to 80% - USD sold off. ISM service numbers then came in above expected to 53.8, which then saw the USD claw back those losses. The net result is that both GBPUSD and EURUSD are trading near recent highs, without being able to make new highs.
The Bank of Canada elected to cut interest rates to 4.75%, and Governor Tiff Macklem also signalled more cuts are to come, should there be sustained evidence that inflation continues to ease. Markets are now pricing in a 64% chance of another rate cut in July by the BoC, and GBPCAD made fresh 34-month highs as a result.
*Daily move - against G10 rates at 7:30am, 06.06.24
** Indicative rates - interbank rates at 7:30am, 06.06.24
So, all eyes on the ECB today, where they are widely expected to cut interest rates from 4% to 3.75%, and thus a lot of this news is priced in. Thus the key mover for the EUR from this meeting will be the Bank's guidance on the timing and magnitude of additional rate cuts. As mentioned at the start of the week, Q1 wage growth numbers came in higher than in Q4 of 2023, and May's CPI numbers came in higher than expected which does present the possibility that we could see a hawkish cut by the ECB – which would be EUR positive, taking GBPEUR lower off the recent highs and EURUSD to fresh 3-month highs. Obviously if the Bank is perceived as dovish then we would expect GBPEUR to hit new highs, and EURUSD to retreat lower.
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