GBP traded well over the course of the morning, but gave up the gains going into the European close, most likely down to a bit of nervousness ahead of this morning's inflation numbers. The USD got a boost after comments from Fed members Bostic and Waller. Bostic set out the possibility of the Fed raising the neutral rate up from 2.6%, and Waller suggested he needs several more months of good inflation before electing to cut rates. More than likely this will mean that we may not see as many rate cuts over the longer term, unless of course there is a recession in the US.
*Daily move - against G10 rates at 7:30am, 22.05.24
** Indicative rates - interbank rates at 7:30am, 22.05.24
UK inflation numbers did not fall as much as analysts were expecting in April, dashing hopes of an earlier interest rate cut and driving GBP higher across the board. Year-on-year CPI fell from 3.2% to 2.3%, missing 2.1%, core CPI (YoY) fell from 4.2% to 3.9%, missing 3.6%, and services CPI (YoY) fell from 6% to 5.9%, missing 5.4%. Market odds of when the Bank of England will cut interest rates have now moved to November from August, as well as reducing the total amount of cuts expected this year. GBP looks set to trade higher as a result, and we could see an attempt at the 2024 highs on both GBPEUR and GBPUSD should there be momentum behind this move.
This evening's Fed minutes will be the main focus for today as markets will seek more clarity from the latest Fed meeting, and look for further evidence of concern over inflation in the US.
The chances of a June rate cut by the BoE slumped this morning following stubborn inflation data, mainly caused by the services numbers. The odds of a June rate cut now sit at 16%, down from 55% and markets have moved the needle to November for when they expect the Bank to administer their first cut.
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