We mentioned yesterday that GBP was looking oversold, and GBP buyers swooped in to support the currency. Better-than-expected PMI numbers, as well as BoE Chief Economist Huw Pill being perceived as hawkish, caused a nice bounce seeing GBP rise across the board. UK PMI numbers were in fact higher than both the US and Europe's, aiding the UK recovery story, and BoE Pill suggested that he is still cautious about inflation. Markets scaled back June rate cut expectations from 65% to 48%. USD weakened across the board, with their PMI numbers coming in lower-than-expected.
CPI numbers in Australia came in higher than expected, adding to markets pricing in a small possibility of a rate hike by the Reserve Bank of Australia in August. AUD is stronger across the board.
*Daily move - against G10 rates at 7:30am, 24.04.24
** Indicative rates - interbank rates at 7:30am, 24.04.24
Following yesterday’s support for GBP, it would seem in the short term we will see less selling pressure on GBP given the economic calendar and BoE speak will be quiet. But given there is a clear division within the BoE now, we still feel that over the medium term we could see further downward pressure, so for clients looking to sell GBP it's worth taking note of the retracement to look at hedging for future needs. The USD sell off yesterday was dictated by a divergence in the PMI numbers from the US and Europe, and this could continue today ahead of the 1st quarter GDP and core PCE numbers later this week.
Yesterday's hawkish comments from Huw Pill illustrated the resistance amongst four of the BoE members for the Bank to start cutting interest rates, citing caution over continued inflationary pressures. Worth remembering at the start of the year markets were pricing in approximately 160bps worth of rate cuts this year, but this has now been whittled down to only 54 bps worth of cuts. Worth noting hawkish repricing on interest rates has been broad, and the currency that will fare well will be the economy that suffers lower rate cut expectations.
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