26/07/2024
Written by: Ian Morley
Summary:
The USD strengthened notably after producer price inflation exceeded expectations, indicating rising costs. Coupled with earlier consumer price inflation, the likelihood of rate cuts from the Fed has diminished to 75 basis points across the year. Initial jobless claims were lower, but retail sales disappointed, hinting at slowing spending momentum and potentially slower growth in the US.
Speeches:
Market Insight:
The latest US economic data suggests the Fed may not rush into interest rate cuts. Nomura bank now predicts only two rate hikes this year, diverging from market expectations. Strong US performance could bolster the currency ahead of next week’s Fed meeting and the Dot Plot release. Meanwhile, UK inflation expectations for the next year precede the upcoming CPI numbers and the BoE meeting. Disappointing UK data this week could dampen recent optimism surrounding the GBP.
The upcoming BoJ meeting gains significance with annual wage hikes rising to 5.28%, potentially affecting GBPJPY, which has been on a downward trend. Further declines may occur if the BoJ considers lifting interest rates from negative territory.
Analysis:
Recent US inflation data suggests the Fed may have more work to do. Money markets have adjusted expectations, reducing projected rate cuts from 95 to 75 basis points. This has strengthened the USD, with potential for further gains if the upcoming dot plot signals a more hawkish stance on rate cuts.