USD finished marginally weaker yesterday, following on from talks of potential currency intervention on CNY and JPY earlier in the morning. GBP was up marginally as well. Fed Bostic reiterated his stance that he expects only rate cuts this year, whilst Fed Cook stated cutting rates too late could harm the economy.
*Daily move - against G10 rates at 7:30am, 26.03.24
** Indicative rates - interbank rates at 7:30am, 26.03.24
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Another quiet day expected with end of quarter flows to dictate the FX market. GBP picked up a bit yesterday following a broad sell-off last week, and we look to see if GBP sellers view this uptick as an opportunity to sell the currency again from a better level, or they wait for a bit more appreciation before selling. Either way, with expectations that the BoE could be the second central bank to cut rates in Europe, there is growing sentiment for markets to continue to sell GBP.
Whilst the chance of a rate cut by the BoE in May seems unlikely given how stubborn inflation still is in the UK, money markets are currently rating a higher probability that the BoE (23%) could cut in May compared to the Fed (12.6%), and ECB (5.9%). We can see below though how fortunes have changed this month, with the UK least likely to cut rates in May at the start of the month to now more likely. This flip in expectations in rate cuts is now a key factor on the recent negative sentiment on GBP.
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