26/07/2024
Written by: Ian Morley
Summary:
The Bank of England, led by Governor Bailey, hinted strongly at forthcoming rate cuts, potentially happening sooner than currently anticipated by markets. The voting was divided, with 7 members opting to maintain rates and 2, Dhingra and Ramsden, preferring rate cuts. Governor Bailey mentioned that indicators of inflation persistence were easing, although further confirmation is necessary before rate adjustments. This aligns the BoE’s stance more closely with the ECB’s, leading to increased market expectations of a rate cut in June, rising from 50% to 59%. Initially, the GBP depreciated in response, yet its losses were contained due to the Bank’s emphasis on data dependency.
USD depreciated broadly after initial jobless claims exceeded expectations, indicating potential weaknesses in the US job market.
Speeches:
Market Insight:
Considering the emphasis on data dependence, market participants will closely monitor upcoming economic indicators and speeches by BoE members to gauge the likelihood of an earlier rate cut. The BoE’s adjustment today, particularly the downward revision of inflation forecasts, increases the possibility of GBP depreciation in the coming months, especially if economic data aligns with the Bank’s projections. UK job figures are scheduled for release on Tuesday, 14th May, followed by CPI data on Wednesday, 22nd May.
GBP experienced a modest upturn this morning as recent data revealed a stronger-than-expected rebound from last year’s recession. March saw a 0.4% growth, contributing to a 0.6% expansion in the entire first quarter. BoE members Pill and Dhingra are scheduled to speak today.
The previous day’s USD weakness following the higher jobless claims was notable. Although the increase was marginal, the USD sell-off appeared disproportionate, indicating the currency’s vulnerability to softer data releases. Further negative impact on USD could arise from a softer U. of Michigan sentiment figure today. Additionally, a series of Fed speakers are expected today.
Analysis:
The pound has shown resilience throughout 2024, maintaining its gains. Today’s higher GDP figure is likely to support the currency in the short term. However, caution is warranted regarding the potential impact of earlier BoE rate adjustments this year, which could drive the currency below its 2024 lows, a level tested twice this year.