26/07/2024
Written by: Ian Morley
Summary:
Yesterday’s higher-than-anticipated CPI figure in the US led to a surge in US 10-year treasury yields to 4.5%, pushing GBPUSD and EURUSD towards their lowest points of the year. Despite this, a crucial support level held firm, with buyers stepping in to support both currency pairs. Market sentiment now suggests an increased likelihood of a rate cut by the Fed in September.
Speeches:
Market Insight:
Following yesterday’s CPI data, the possibility of rate cuts by the Fed in June and July has been ruled out, with markets now indicating a 90% probability of a hike in September. Expectations for rate cuts throughout the year have dwindled to 40 basis points. Both GBPUSD and EURUSD are trading at their lowest levels of 2024, with market participants cautiously observing the potential strengthening of the USD. Attention today shifts to PPI inflation figures, with any increase likely to bolster USD strength. Additionally, the market awaits the ECB’s announcement. While no interest rate changes are anticipated, the communication from Christine Lagarde will be closely monitored.
Analysis:
Market expectations for Fed rate cuts have shifted significantly this year amidst persistent inflationary pressures in the US. Initially, markets priced in a total of 150 basis points in cuts, but this has now decreased to just 40 basis points. The USD index continues its ascent towards November 2023 highs, aligning with movements in treasury yields. Observers are now keen to see whether GBPUSD and EURUSD will follow suit and decline to similar levels.