Last week seems so far away, so here is a quick recap. The combination of inflation not falling as much as expected, and a general election being called for the 4th of July all but dismissed the expectation of a June interest rate cut by the BoE, with markets pricing in November now for a rate cut. GBP garnered support as a result but gains were limited on the back of lower-than-estimated activity in May in the services and manufacturing sector and a decline in retail sales.
EUR demand picked up as PMI numbers came in stronger and wage growth in Q1 came in higher easing expectations of a second rate in July by the ECB. USD attempted to claw back the month's losses following better PMI numbers causing either November/December to be pencilled in for the first rate cut.
*Daily move - against G10 rates at 7:30am, 28.05.24
** Indicative rates - interbank rates at 7:30am, 28.05.24
The spotlight this week falls on Friday's CPI numbers from Europe and core PCE inflation numbers from the US. Europe's core CPI number is expected to remain at 2.7% which will likely add to the case that the ECB may not need to make consecutive rate cuts this year. USD has had a poor May weakening across the board with markets going from one extreme to another, speculating on a rate hike this year to pricing in a rate cut in September. As we know the core PCE number is the inflation reading that the Fed focus on, so this reading will likely have a strong bearing on Fed commentary as well as determine which direction USD is likely to go.
GBPEUR hit the 2023/2024 highs after ECB Villeroy commented that the ECB shouldn’t exclude a second rate cut in July. His comments come ahead of the ECB survey of CPI expectations for April. GBPUSD climbed to a fresh 2-month high as well.
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