GBP higher as UK inflation falls less than hoped

Good morning

Lets start with UK inflation which came out a little earlier this morning.  The good news is that it is sharply lower than it was last month and is the lowest level since December 2021.  The not so good news is that is was not quite as low as the market had hoped.  The headline came in at 2.3% against 2.1% expected, the core was at 3.9% against 3.6% expected.  The dip was largely driven by the lower energy price cap.

GBP is higher as hopes of a June rate cut are dashed, GBPUSD rose to 1.2760, now 1.2750, GBPEUR is up at a heady 1.1745.  Remember that the 1.1770 area has capped the upside for a long time, actually since the Truss/Kwarteng debacle back in September 2022.  GBP has made gains against other currencies as well, GBPAUD is up to 1.9140, GBPJPY now 199.40, just 10 pips off the highs.  It is worth noting that BoEs Bailey yesterday suggested the next UK rate move would be lower, the issue is one of timing. The IMF have chipped in and said they think UK should cut rates two or three times this year to avoid stalling the economy.

NZD has also had something of a boost after a rather hawkish RBNZ meeting overnight.  They kept rates unchanged at 5.5% but raised their inflation forecasts and pushed out the period in which they see inflation above the RBNZs target to Q4 2024.  They said they had discussed a rate rise and although they chose not to this time, but they are concerned about the upside risks to inflation and we cannot rule out a move higher in the coming months.  NZD rallied, AUDNZD traded down from 1.093.0 to 1.0860.  GBPNZD moved sharply lower from 2.0840 to 2.0680 but has made its way back to 2.0840, helped by the post-inflation release GBP strength.

ECBs Lagarde speak this morning, I don’t expect any sparks from her but look for more of the same ‘inflation is under control’ talk and a June rate cut is looking like something of a certainty.  We have more Fed officials speaking today, they are unlikely to say much more than the usual ‘economy is resilient, we can be patient with rates’.  Otherwise not much on the calendar, tomorrow we have a host of PMi data from EU, UK and US, while Friday bring UK retail sales.  It’s a bit too early to look forward to the long weekend, and with the weather as miserable as it is I’m quite pleased to be sitting in the office.  

I’m more happy to be sitting here than on the Singapore flight that hit turbulence yesterday.  One passenger unfortunately passed away, many others suffered injuries, most of those did not have their seatbelts fastened at the time the plane dropped suddenly and violently.  A frightening experience for all involved.

Have a great day, stay dry…

-  09.00 ECBs Lagarde speaks

-  11.00 Buba monthly report

-  13.40 Feds Goolsbee speaks

-  13.45 BoEs Breeden speaks

-  15.00 US existing home sales

-  19.00 FOMC minutes

-  19.00 RBNZs Orr speaks

-  23.45 NZ retail sales

-  02.00 AUS consumer inflation expectation

GBP holds gains ahead of tomorrow's inflation numbers

Good morning

GBP has held recent gains against both USD and EUR, now trading at 1.2710 and 1.1705.  EURUSD is stuck around the 1.0870 area.  USDJPY broker higher, trading up from the 155.65 area to reach 156.55 overnight.  It is just off those highs now at 156.15 but with GBP strength and yen weakness GBPJPY is now 198.50 after failing just ahead of 199.00 a few times.  Will we be seeing 200 print, or will BoJ step in again to slow the yen depreciation?

This GBP support, which has taken GBPUSD to two month highs, has come despite BoEs Broadbent saying he can see a rate cut coming in the summer although he did add that BoE will be wary of cutting rates too soon.  Early tomorrow morning we will have the latest UK inflation data which of course is going to key when it comes to BoE decision making.  A much lower headline number is expected due to the lower Ofgem price cap on energy, some see it coming in as low as 2.1% from 3.2% last month, while the core is also expected to fall from 4.2% to 3.6%.  If we don’t see those declines we could well be looking at a higher GBP.

We had several Fed officials speaking yesterday, there was nothing really out of the blue, more just the normal ‘rate higher for longer, normal rates will be higher than previously, still fairly balanced risks on inflation, not ready to see sustainable lower inflation just yet.  They are happy to sit and wait.  US equities remain at or near record highs with many forecasting higher levels still to come in the major indices.  More Fed officials on the calendar today but I don’t expect any ground-breaking news to emerge from them.

RBA minutes overnight showed that a rate rise was discussed but the case for keeping them on hold was stronger.  There is a feeling though that inflation will likely stay high for longer, and RBA have certainly kept the potential for higher rates on the table.  However AUD has lost a little ground since the release with GBPAUD trading up to 1.9100 overnight, the highest level since early May.  Now 1.9070.

We will have the latest RBNZ rate announcement in the early hours of tomorrow morning.  They are expected to keep rates unchanged but I’m looking to see how hawkish they sound in the press conference.  Back in April they were certainly more hawkish than some expected although since then we have seen a lower RBNZ inflation expectation reading. 

That’s about all for now.  The UK inflation early tomorrow morning is the one to watch, today may be another fairly slow day in the markets.  This afternoon we will hear from Gareth Southgate as he names his provisional squad for the Euros.  I have made myself unavailable for selection. 

I hope you managed to get a bit of sun over the last few days.  It’s a bit miserable out and certainly cooler and the forecast suggests more of the same in the coming days.  It was good while it lasted. 

-  13.30 CAD CPI

-  14.00 Feds Waller speaks

-  14.05 Feds Williams speaks

-  15.45 Feds Barr speaks

-  18.00 BoEs Bailey speaks

-  00.00 Feds Bostic, Collins, Mester speak

-  00.50 Japan trade balance

-  03.00 RBNZ rate announcement

-  04.00 RBNZ press conference

-  07.00 UK CPI, RPI, PPI

GBP in favour but gold shines brighter

Good morning

Welcome back.  I hope you enjoyed the weather over the weekend.  Delightful and most welcome, lets hope it stays that way.

We’ve been pretty quiet in FX recently, although a bout of GBP buying late Friday afternoon took GBPUSD up to 1.2700 and it has sat around there ever since.  Now 1.2705, it means that with EURUSD still around 1.0875, GBPEUR is clawing its way back towards 1.1700.  It got to 1.1690 on Friday, now 1.1680, a healthy recovery having been down around 1.1600 last week.  USDJPY is holding around 155.65 despite ongoing talk of a possible BoJ rate rise, which puts GBPJPY up at 197.65.  It has actually been above 198.00 overnight.

Quite why GBP has enjoyed this little flurry is not fully explained.  Indeed, with some banks lowering their forecast for ECB rate cuts to three cuts this year, down from four, it would be more reasonable to think we should see a slightly stronger EUR than GBP.  Not so.  However for much of 2024 GBPEUR has been sitting within 20 pips or so of 1.1700, a level it currently seems comfortable with.

Gold has had another push higher, trading to around $2,450.  The ongoing demand from China and the weaker USD combining to send the precious metal to these record highs.  We’ve also seen new highs in copper on the LME, which in turn seems to have given AUD a bit of support.

The Iranian President Raisi, and the Iranian Foreign Minister have been killed in a helicopter crash.  When I first read the headline I wondered whether it was a deliberate attack, which wold have explained gold’s rally, however it would seem that bad weather conditions were to blame.  Even so, there is a concern that the accident will lead to greater instability in the region.  Raisi was a hardliner who is unlikely to be missed by many Iranians.  The anti-government protests that followed the death of a young lady who had been arrested for wearing her hijab incorrectly.  Whether we now see a more tolerant and open Iran remains to be seen.

Congratulations to Man City for yet another Premier League title.  One cannot fault them for their dominance although with 115 financial fair play charges still hanging over them i’m still surprised they haven’t been docked any points when the likes of Everton and Notts Forest have both been deducted points for, some would say, much smaller breaches.  Anyway, Spurs held on to that fifth place so they will be in Europe next season.  We’ve now got the FA cup final to enjoy next weekend, along with that Championship play-off final between Leeds Utd and Southampton to decide which team will earn promotion to the Premier League.

We will then have a short break from football until mid-June when the long-awaited Euro 2024 tournament arrives.  I’m looking forward to that, England are favourites but we all know how well England do at getting almost there and then failing at the last hurdle.  Will this year be any different?

In other sports, Fury lost to Usyk on Saturday night.  I didn’t see it but presume it was a decent battle.  Verstappen won the F1 grand prix, although Norris did run him close, his McLaren finishing less than one second behind the Red Bull. 

Not much on the calendar today other than few Fed officials speaking at various events.  Things should liven up a bit later in the week with UK inflation on Wednesday morning, UK, EU and US PMIs Thursday and UK retail sales Friday. 

Have a great day

-  10.00 BoEs Broadbent speaks

-  13.45 Feds Bostic speaks

-  14.00 Feds Barr, Waller speak

-  15.30 Feds Jefferson speaks

-  00.00 Feds Bostic speaks

-  01.30 AUS westpac consumer confidence

-  02.30 RBA minutes