26/07/2024
Written by: Ian Morley
Summary
The US dollar surged yesterday as inflation figures challenged the narrative of disinflation in the US, leading to a sell-off in treasuries and pushing yields to their highest levels since December. Major currency pairs such as EURUSD and GBPUSD experienced significant movements, with GBPUSD retracting earlier gains after positive job numbers. Concerns also arose regarding real average weekly earnings declining into negative territory while household credit card debt remains high.
The rise in USD prompted USDJPY to surpass 150, prompting Japanese officials to monitor FX movements closely, hinting at possible intervention by the Bank of Japan. GBPJPY reached a nine-year high amidst these developments.
Market Insight
UK inflation unexpectedly dropped this morning, erasing previous gains made by GBP following positive wage data. The decline exceeded expectations, with year-on-year figures falling to 4%, contrary to an expected rise to 4.1%. Money markets adjusted rate cut predictions, now expecting a 75bps reduction this year compared to yesterday’s 65bps. Market sentiment, previously leaning towards fewer rate cuts by the Bank of England, is now shifting, potentially leading to short-term weakness in GBP.
Recent US economic data, combined with Federal Reserve statements and yesterday’s inflation figures, have reignited interest among USD sellers, who are more bullish on GBPUSD’s downward trajectory. Targeting December lows, GBPUSD may face further pressure, while EURUSD could aim for October lows. The upcoming core PCE inflation report on February 29th will be closely watched.
Focus remains on EU GDP figures, expected to remain flat. Unless growth exceeds expectations, the ECB is likely to lead in interest rate cuts, weighing on the euro.
Analysis
Shifts in interest rate cut expectations driven by recent economic data have narrowed the gap between UK and US rates, resulting in GBPUSD decline. Core PCE inflation data on February 29th will continue to influence rate differentials, favouring downside for GBPUSD and potentially testing December lows.
Summary
The US dollar surged yesterday as inflation figures challenged the narrative of disinflation in the US, leading to a sell-off in treasuries and pushing yields to their highest levels since December. Major currency pairs such as EURUSD and GBPUSD experienced significant movements, with GBPUSD retracting earlier gains after positive job numbers. Concerns also arose regarding real average weekly earnings declining into negative territory while household credit card debt remains high.
The rise in USD prompted USDJPY to surpass 150, prompting Japanese officials to monitor FX movements closely, hinting at possible intervention by the Bank of Japan. GBPJPY reached a nine-year high amidst these developments.
Market Insight
UK inflation unexpectedly dropped this morning, erasing previous gains made by GBP following positive wage data. The decline exceeded expectations, with year-on-year figures falling to 4%, contrary to an expected rise to 4.1%. Money markets adjusted rate cut predictions, now expecting a 75bps reduction this year compared to yesterday’s 65bps. Market sentiment, previously leaning towards fewer rate cuts by the Bank of England, is now shifting, potentially leading to short-term weakness in GBP.
Recent US economic data, combined with Federal Reserve statements and yesterday’s inflation figures, have reignited interest among USD sellers, who are more bullish on GBPUSD’s downward trajectory. Targeting December lows, GBPUSD may face further pressure, while EURUSD could aim for October lows. The upcoming core PCE inflation report on February 29th will be closely watched.
Focus remains on EU GDP figures, expected to remain flat. Unless growth exceeds expectations, the ECB is likely to lead in interest rate cuts, weighing on the euro.
Analysis
Shifts in interest rate cut expectations driven by recent economic data have narrowed the gap between UK and US rates, resulting in GBPUSD decline. Core PCE inflation data on February 29th will continue to influence rate differentials, favouring downside for GBPUSD and potentially testing December lows.