03/10/2024
Written by: Ian Morley
Summary:
Inflation did not decrease as much as anticipated, and with a general election announced for the 4th of July, the expectation of a June interest rate cut by the BoE was all but dismissed. Markets are now predicting a rate cut in November. The GBP found some support as a result, but gains were limited due to lower-than-expected activity in the services and manufacturing sectors in May and a decline in retail sales.
Demand for the EUR increased as PMI figures were stronger and wage growth in Q1 was higher, easing expectations of a second rate cut in July by the ECB. The USD attempted to recover the month’s losses following better PMI figures, suggesting a rate cut might occur in November or December.
Speeches:
Market Insight:
This week, the focus is on Friday’s CPI figures from Europe and core PCE inflation figures from the US. Europe’s core CPI is expected to remain at 2.7%, which could strengthen the argument that the ECB may not need to make consecutive rate cuts this year. The USD had a poor May, weakening across the board, with markets oscillating from speculating on a rate hike this year to pricing in a rate cut in September. The core PCE figure is the inflation reading that the Fed focuses on, so this figure will likely have a significant impact on Fed commentary and determine the direction of the USD.
GBPEUR reached its highest point for 2023/2024 after ECB Villeroy suggested that the ECB shouldn’t rule out a second rate cut in July. His comments come ahead of the ECB survey of CPI expectations for April. GBPUSD also climbed to a fresh 2-month high.