26/07/2024
Written by: Ian Morley
Summary:
The GBP performed well throughout the morning but relinquished its gains by the European close, likely due to some apprehension ahead of this morning’s inflation figures. The USD received a boost following remarks from Fed officials Bostic and Waller. Bostic mentioned the possibility of the Fed raising the neutral rate above 2.6%, while Waller indicated he would need several more months of positive inflation data before considering a rate cut. This suggests that the number of rate cuts in the long term may be fewer, barring a recession in the US.
Speeches:
Market Insight:
UK inflation figures for April did not decrease as much as analysts anticipated, disappointing those hoping for an earlier interest rate cut and driving the GBP higher across the board. The year-on-year CPI dropped from 3.2% to 2.3%, missing the forecast of 2.1%. Core CPI (YoY) decreased from 4.2% to 3.9%, below the expected 3.6%, and services CPI (YoY) fell from 6% to 5.9%, missing the 5.4% forecast. Consequently, market expectations for the Bank of England’s first interest rate cut have shifted from August to November, and the total number of cuts expected this year has been reduced. As a result, the GBP appears poised for further gains, potentially challenging the 2024 highs against both the EUR and USD if this momentum continues.
This evening’s Fed minutes will be closely watched as markets seek further clarity from the latest Fed meeting and additional evidence of concerns regarding US inflation.
Analysis:
The probability of a June rate cut by the BoE dropped significantly this morning following persistently high inflation data, particularly in the services sector. The odds of a June rate cut have decreased from 55% to 16%, with markets now expecting the first cut to occur in November.