26/07/2024
Written by: Ian Morley
Summary:
The British Pound (GBP) experienced a widespread decline following the Bank of England meeting, where two of the more hawkish members withdrew their calls for further rate hikes. This shift suggests a consensus within the MPC towards potential rate cuts, with expectations for a cut in June rising from 50% to 75%. Additionally, the Swiss Franc (CHF) also depreciated after a surprise rate cut by the Swiss National Bank (SNB). These events have raised the possibility that the Federal Reserve (Fed) might delay rate cuts compared to its European counterparts, leading to the largest daily gain on the US Dollar (USD) since February 2nd. Despite largely overlooked Purchasing Managers’ Index (PMI) numbers, Europe’s combined services and manufacturing sectors remained in contraction, UK activity expansion slowed slightly, and US numbers met expectations.
Speeches:
Market Insight:
The recent price movements, particularly in USD pairs, indicate significant shifts, with gains in the greenback outweighing losses following the Fed meeting. With the BoE, European Central Bank (ECB), and Fed all anticipated to cut rates in June, focus may shift to economic growth, potentially bolstering the USD as it approaches support levels against GBPUSD and EURUSD. The upcoming critical USD data point will be next Friday’s (Good Friday) core Personal Consumption Expenditures (PCE) inflation figure. GBP has faced further declines, prompted by dovish comments from Governor Bailey, suggesting that rate cuts are on the table at future meetings, even before inflation falls to 2%. This aligns with previous indications of waning optimism for GBP, supported by fundamental factors.
Analysis:
Yesterday’s significant price movements hinted at potential shifts in the longer-term directions of GBP and USD, evidenced by engulfing patterns on the GBP and USD indices. Such patterns occur when the day’s price action engulfs that of the previous day. Combined with these occurrences on rising and falling trend lines for GBP and USD respectively, it suggests a possible onset of a weakening trend for GBP and a strengthening trend for USD.