USD gained in the afternoon as markets' pricing on a June rate cut reduced to a 50% chance only. Goldman Sachs also changed their forecasts from four rate cuts to three. It seems the recent inflation data is weighing on the mind of traders ahead of the Fed’s revised dot plot. Could the Fed allude to only 0.50% worth of cuts this year
The Reserve Bank of Australia leaned to the dovish side with the removal of “a further increase in interest rates cannot be ruled out” from their statement. AUD is weaker as a result.
The Bank of Japan elected to hike rates, moving their policy rate target to 0-0.1%. However, there were few clues with regards to future rate hikes – a perceived dovish hike. Given the announcement was broadly in-line with expectations, we are seeing profit taking on the recent gains on JPY.
*Daily move - against G10 rates at 7:30am, 19.03.24
** Indicative rates - interbank rates at 7:30am, 19.03.24
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USD is broadly higher this morning following the dovish RBA and BoJ announcements, and today only the ZEW surveys from Europe and Canada's CPI numbers are due for release. We don’t expect fireworks from these two data points.
So, attention falls to tomorrow morning's CPI numbers from the UK (7am). Markets are expecting CPI to fall to 3.5%, core CPI to fall to 4.6% and, most importantly for the BoE, the services CPI to fall to 6%. There are calls that these CPI numbers could come in lower than what's expected, which of course if this does happen would be broadly GBP negative and could in fact bring forward the date of when the BoE will cut interest rates – presently expected in August. We mentioned last week net positioning on GBP is long, and at the highest for six months suggesting room for further advances for GBP gains beyond recent highs may well be limited – unless of course, data suggests a further delay in rate cuts by the BoE.
Tomorrow's CPI numbers from the UK could well be key for GBP volatility, particularly if pricing on the BoE’s first expected rate cuts deviates away from August. As we can see, we are still well above the 2% target rate for CPI, suggesting more work to do from the Bank. But anything to suggest inflation is falling quicker than forecast, will likely bring forward the first expected rate hike by the BoE.
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