26/07/2024
Written by: Ian Morley
Summary:
Trading remained stagnant yesterday as markets braced for the Fed meeting later in the day. GBP movements were subdued and lacked direction post the inflation figures, awaiting today’s BoE meeting.
The Fed took a dovish stance, committing to their projection of three 25bps rate cuts this year, regardless of stronger inflation or growth. Fed Chair Powell downplayed the recent CPI and PPI upticks, expressing optimism about the economy by revising GDP forecasts upward for the year and hinting at fewer rate cuts in 2025. This dovish outlook solidified expectations of a rate cut in June, leading to USD depreciation.
Speeches:
Market Insight:
PMI figures scheduled for today will offer insights into first-quarter economic activity. The UK and European economies have displayed consistent improvement since the latter part of last year, potentially reinforcing the narrative of recovery from a sluggish second half of the previous year.
Between UK/EU and US PMIs, the BoE meeting is positioned. While no interest rate changes are anticipated, voting patterns will gauge the Bank’s stance on the dovish-hawkish spectrum. The BoE’s comparatively delayed rate cut strategy compared to the ECB and Fed has bolstered GBP against EUR and USD for much of the year. A dovish shift from the BoE could exert selling pressure on GBP, aligning its rate cut timeline more closely with the ECB and Fed. Conversely, a less dovish stance could push GBPUSD towards its 2024 highs.
Analysis:
In the UK, inflation has been receding faster than anticipated, potentially hastening the BoE’s rate cut timeline. However, the slower decline in services CPI might dissuade the BoE from altering its stance, maintaining the likelihood of a first rate cut in August.