Currency news

GBP higher as premature rate cut hopes reduce

Thanim Islam
Profile
Head of FX Analysis at Equals Money
-
3
min read
Publish date
22/05/24
    • GBP climbs on inflation disappointment
    • Fed Minutes in focus this evening


    Yesterday's currency recap

    GBP traded well over the course of the morning, but gave up the gains going into the European close, most likely down to a bit of nervousness ahead of this morning's inflation numbers. The USD got a boost after comments from Fed members Bostic and Waller. Bostic set out the possibility of the Fed raising the neutral rate up from 2.6%, and Waller suggested he needs several more months of good inflation before electing to cut rates. More than likely this will mean that we may not see as many rate cuts over the longer term, unless of course there is a recession in the US.

    Today's GBP rates

    Currency pair Daily move* Indicative rate**
    GBPAUD 0.03% 1.9063
    GBPCAD 0.17% 1.7341
    GBPCHF 0.07% 1.1579
    GBPDKK 0.03% 8.7349
    GBPEUR 0.03% 1.1707
    GBPJPY -0.08% 198.4020
    GBPNOK -0.25% 13.5639
    GBPNZD 0.18% 2.0851
    GBPSEK 0.10% 13.5972
    GBPUSD 0.01% 1.2709


    *Daily move - against G10 rates at 7:30am, 22.05.24

    ** Indicative rates - interbank rates at 7:30am, 22.05.24

    Key data points

    Currency Event Period Consensus Previous
    USD Fed Minutes May

    Upcoming speeches

    • EUR: ECB Lagarde
    • GBP: BoE Breeden
    • USD: Fed Goolsbee

    What we think

    UK inflation numbers did not fall as much as analysts were expecting in April, dashing hopes of an earlier interest rate cut and driving GBP higher across the board. Year-on-year CPI fell from 3.2% to 2.3%, missing 2.1%, core CPI (YoY) fell from 4.2% to 3.9%, missing 3.6%, and services CPI (YoY) fell from 6% to 5.9%, missing 5.4%. Market odds of when the Bank of England will cut interest rates have now moved to November from August, as well as reducing the total amount of cuts expected this year. GBP looks set to trade higher as a result, and we could see an attempt at the 2024 highs on both GBPEUR and GBPUSD should there be momentum behind this move.

    This evening's Fed minutes will be the main focus for today as markets will seek more clarity from the latest Fed meeting, and look for further evidence of concern over inflation in the US.

    Chart of the day

    The chances of a June rate cut by the BoE slumped this morning following stubborn inflation data, mainly caused by the services numbers. The odds of a June rate cut now sit at 16%, down from 55% and markets have moved the needle to November for when they expect the Bank to administer their first cut.

    22052024 cotd
    Source: Bloomberg Finance L.P.

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

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