Currency news

ECB to signal more rate cuts?

Head of FX Analysis at Equals Money
-
3
min read
Publish date
06/06/24
    • Lagarde’s guidance will be the focal point
    • Further signs of weakness in US jobs market


    Yesterday's currency recap

    Another day and another soft number from the US, with the ADP payrolls report coming in lower than expected. As a result, we saw markets increase the odds of a rate cut in September from 75% to 80% - USD sold off. ISM service numbers then came in above expected to 53.8, which then saw the USD claw back those losses. The net result is that both GBPUSD and EURUSD are trading near recent highs, without being able to make new highs.

    The Bank of Canada elected to cut interest rates to 4.75%, and Governor Tiff Macklem also signalled more cuts are to come, should there be sustained evidence that inflation continues to ease. Markets are now pricing in a 64% chance of another rate cut in July by the BoC, and GBPCAD made fresh 34-month highs as a result.

    Today's GBP rates

    Currency pair Daily move* Indicative rate**
    GBPAUD 0.12% 1.9234
    GBPCAD 0.23% 1.7506
    GBPCHF 0.45% 1.1419
    GBPDKK 0.12% 8.7666
    GBPEUR 0.12% 1.1753
    GBPJPY 0.84% 199.4580
    GBPNOK 0.24% 13.5257
    GBPNZD -0.10% 2.0655
    GBPSEK -0.18% 13.3111
    GBPUSD 0.03% 1.2775


    *Daily move - against G10 rates at 7:30am, 06.06.24

    ** Indicative rates - interbank rates at 7:30am, 06.06.24

    Key data points

    Currency Event Period Consensus Previous
    GBP DMP 1 Year CPI Expectations May 2.80% 2.90%
    EUR Retail Sales MoM Apr -0.30% 0.80%
    EUR Retail Sales YoY Apr 0.20% 0.70%
    EUR ECB Rate Decision Jun 3.75% 4.00%
    USD Initial Jobless Claims Jun 220.000 219,000

    Upcoming speeches

    • None today.

    What we think

    So, all eyes on the ECB today, where they are widely expected to cut interest rates from 4% to 3.75%, and thus a lot of this news is priced in. Thus the key mover for the EUR from this meeting will be the Bank's guidance on the timing and magnitude of additional rate cuts. As mentioned at the start of the week, Q1 wage growth numbers came in higher than in Q4 of 2023, and May's CPI numbers came in higher than expected which does present the possibility that we could see a hawkish cut by the ECB – which would be EUR positive, taking GBPEUR lower off the recent highs and EURUSD to fresh 3-month highs. Obviously if the Bank is perceived as dovish then we would expect GBPEUR to hit new highs, and EURUSD to retreat lower.

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    About the author
    Thanim Islam
    Profile
    Head of FX Analysis at Equals Money

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