USD weakness continued going into the weekend as markets continued to trade on US data points, indicating that the Fed will likely have to cut interest rates later this year. Only a month ago there was speculation that the Fed could hike this year, but as bets firmed up for a cut later this year, USD has continued to weaken. GBP held up well going into this week's inflation numbers.
*Daily move - against G10 rates at 7:30am, 20.05.24
** Indicative rates - interbank rates at 7:30am, 20.05.24
Focus today will fall on a host of speakers from the Fed including Bostic, Barr, Waller, Jefferson, and Mester. Both GBPUSD and EURUSD are trading at the April high resistance levels, and failure for hawkish comments to support USD could see this breached. We will have further insight from the Fed with the release of the minutes on Wednesday evening.
Main focus this week will be on UK inflation numbers on Wednesday morning, which are all expected to show a moderation on price pressures. Recent commentary from the Bank of England has signalled to the markets that the Bank could elect to cut rates sooner than what markets are pricing. A lower services and core print could well move the needle to June for the first rate cut - current pricing suggests 60% probability – which will likely see weakness on GBP pairs. Hot numbers will see gains for GBP.
Focus on Thursday will fall on PMI numbers from the EU, UK, and US as we continue to monitor the performance of each respective economy.
Inflation is the highlight of this week, and whether the data points to the Bank of England cutting interest rates in June. There will be one more inflation reading before the June meeting, but this week's numbers will likely dictate how GBP trades into that June inflation report and BoE meeting.
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