GBP declined across the board after the Bank of England meeting revealed that two of the most hawkish members dropped their calls for further rate hikes, implying consensus within the MPC that we could be on the path to lower interest rates bets on a rate cut in June, firmed up from 50% to 75%.
CHF also declined yesterday after a surprise rate cut by the SNB.
The combination of these two events is now raising the prospect that the Fed may well actually cut rates later than its European counterparts, which saw the biggest daily gain on USD since 2nd February.
PMI numbers were largely ignored, but the numbers showed that combined services and manufacturing for Europe remained in contraction, UK activity expansion slowed slightly, and US numbers came in line with expectations.
*Daily move - against G10 rates at 7:30am, 22.03.24
** Indicative rates - interbank rates at 7:30am, 22.03.24
Yesterday's price action was very telling, particularly looking at USD pairs, with the gains on greenback completely engulfing the losses following the Fed meeting. With the BoE, ECB, and Fed all now priced to cut rates in June, we seem to be on a level playing field when it comes to respective monetary policy. So, focus may well now be turning to growth, which should also give more reason for USD to gain, at least as we head into respective support levels on GBPUSD and EURUSD. The next major USD data point will be next Friday's (Good Friday) core PCE inflation number.
GBP has fallen further this morning following dovish comments from Governor Bailey in an interview with the Financial Times. Bailey stated that inflation doesn’t need to fall to 2% before cutting rates, and that rate cuts are in play at future meetings. We only mentioned last week, that optimism for GBP could be waning. With the possibility of seeing an earlier rate cut, the fundamentals seem to be supporting this notion.
The large price action yesterday illustrated a possible change in longer term direction on GBP and USD, with an engulfing pattern showing on the GBP index and USD index. This happens when price action on a particular day engulfs the previous days price action. Add to this these patterns are occurring on rising and falling trend lines respectively, and we may well be at the start of a weakening GBP trending and strengthening USD trend.
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