GBP gains continued over the course of the day following the morning's CPI numbers coming in as expected and thus maintaining market expectations of future rate cuts.
Later in the evening, the Fed cut interest rates by 0.50% and revised their dot plot to signal an extra 50 bps of cuts by the end of the year, followed by 100 bps cut in 2025 and a 50 bps cut in 2026. This strategic adjustment aims to bring the terminal rate to 3%, surpassing June's forecasts and aligning more closely with market expectations. The move caused USD to initially weaken. However as soon as Fed Chair Powell remarked that 50 bps cut was not necessarily the path the Fed will be taking, the USD swiftly bounced back.
*Daily move - against G10 rates at 7:30am, 19.09.24
** Indicative rates - interbank rates at 7:30am, 19.09.24
Following on from yesterday's CPI numbers, market consensus seems to be that today’s Bank of England meeting is likely to be uneventful. We're probably going to see a statement hinting at the BoE's dependence on future rate policy data. In this scenario we would expect GBP to trade well, so long as there is risk appetite in the markets. However, should the BoE surprise markets and suggest they are in fact more dovish than what markets are expecting then we would certainly expect a weaker GBP across the board.
USD is back to trading weaker as European markets adjust to last night’s Fed meeting. In the short term, we could see GBPUSD and EURUSD attempt to reach new 2024 highs.
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