26/07/2024
Written by: Ian Morley
Summary:
Yesterday, we observed GBP showing signs of being oversold, prompting GBP buyers to step in and support the currency. This was driven by better-than-expected PMI numbers and a perceived hawkish stance from BoE Chief Economist Huw Pill, leading to a notable increase in GBP value across various currencies. UK PMI figures surpassed both US and European counterparts, bolstering the UK’s recovery narrative. However, Pill remained cautious about inflation, resulting in a decrease in market expectations for a June rate cut from 65% to 48%. Concurrently, the USD saw a general weakening as its PMI data fell short of expectations.
Speeches:
Market Insight:
Following the recent support for GBP, short-term selling pressure on the currency is expected to ease, particularly due to a quieter economic calendar and subdued BoE rhetoric. Nonetheless, given the evident division within the BoE, there may still be medium-term downward pressure on GBP. Clients considering selling GBP should monitor retracement levels and consider hedging strategies for future needs. The USD’s decline yesterday was influenced by the discrepancy in PMI figures between the US and Europe, potentially continuing ahead of upcoming GDP and core PCE data releases later this week.
Analysis:
Yesterday, Huw Pill’s hawkish remarks highlighted resistance within the BoE against initiating interest rate cuts, citing concerns over ongoing inflationary pressures. Notably, market expectations for rate cuts have significantly reduced from around 160 basis points at the beginning of the year to just 54 basis points presently. The widespread repricing towards a hawkish stance on interest rates has implications for currency performance, favouring economies with lower rate cut expectations.