26/07/2024
Written by: Ian Morley
Summary:
The US dollar strengthened in the afternoon as the probability of a rate cut in June decreased to 50%. Goldman Sachs revised their forecasts from four rate cuts to three, influenced by recent inflation data. Traders await the Fed’s revised dot plot, speculating if the Fed might hint at only 0.50% worth of cuts this year.
The Reserve Bank of Australia took a dovish stance by removing “a further increase in interest rates cannot be ruled out” from their statement, leading to weakness in the Australian dollar.
The Bank of Japan raised rates, setting their policy rate target at 0-0.1%. However, lacking clear indications of future rate hikes, the move was perceived as dovish. Profit-taking on recent JPY gains followed the announcement, which aligned with expectations.
Speeches:
Market Insight:
The USD is generally stronger today after the dovish RBA and BoJ announcements. Only the ZEW surveys from Europe and Canada’s CPI numbers are scheduled for release, with limited market impact expected.
Attention turns to tomorrow’s CPI numbers from the UK (7am). Projections anticipate a decrease to 3.5% for CPI, 4.6% for core CPI, and 6% for services CPI. Lower-than-expected figures could weaken the GBP and potentially prompt the BoE to advance its expected interest rate cut from August. Previous reports showed net positioning on GBP to be long, suggesting limited room for further gains unless data suggests a delay in rate cuts by the BoE.
Analysis:
Tomorrow’s CPI numbers from the UK could significantly impact GBP volatility, especially if they influence expectations regarding the timing of the BoE’s first rate cut, currently anticipated in August. With CPI still well above the 2% target rate, indications of inflation falling faster than forecast may prompt the BoE to expedite its first rate cut.