BoE's Mann surprises in voting for a 50bps rate cut

Good morning

The Bank of England did cut rates by 25bps to 4.5% yesterday, a change that was widely expected.  What hadn’t been expected was the call be a couple of members for a 50bps cut, one of those being Catherine Mann who, until now, has been the most hawkish BoE official.  Dhingra also voted for a 50bps cut, less of a surprise but still unexpected.  Mann speaks Tuesday, hopefully we will learn more about her decision then. 

BoEs Bailey did his best to persuade people that the voting pattern is not important.  Bailey added that BoE are taking a careful and gradual approach to rate cuts, wary of inflation that, although underlying pressures may be easing, factors such as higher energy prices are likely to prevent inflation falling.  BoE cut 2025 growth forecasts to 0.75% from 1.5% and now see inflation at 3.7%, well up from the 2% target.  Doesn’t make great reading and a bitter blow for Reeves and her hopes for the economy.

GBP dropped sharply on the announcement, GBPUSD fell from 1.2430 to 1.2360 but has since made back those losses and more, now 1.2445.  GBP is still lower against the Euro, GBPEUR now 1.1975 but off yesterday’s lows of 1.1935.  Other GBP crosses are also lower and certainly well off the levels seen at the start of the week.

Yen is stronger again, fuelled by ongoing talk of more rate rises this year.  USDJPY traded briefly below 151.00 overnight, now 151.80 but still a long way from the high 155s we saw at the start pf the week.  GBPJPY traded down to 187.60 overnight, has since recovered to 189.00 but again, well off the highs seen earlier Monday and Tuesday.

Elsewhere, RBI did cut rates 25bps to 6.205%, the first cut for nearly five years.  The cut comes amid uncertainty of the global economic outlook, but RBI remain fairly neutral on rates, so perhaps we shouldn’t expect further cuts any time soon.   

In sport, Spurs were dumped out of the League Cup by Liverpool who hardly broke a sweat as they overcame their one goal deficit to stroll out 4-0 winners last night.  Disappointing, but unfortunately not surprising. Next  up for Spurs is FA cup action on Sunday where they face Aston Villa.  Another cup exit looks possible, so we’ll have to settle with just the Europa League and of course ensure we stay out of a relegation battle.

The Six Nations continues this weekend, England facing another tough test, this time against France. I’d hoped we were going to see a better England performance in this tournament, but I’ve lost a bit of confidence in that.

The latest US nonfarm payrolls data will be released this afternoon, a headline around +170k is expected while the unemployment rate is expected to stay at 4.1%.  Markets could well be quiet heading into the release, from then it is really down to the data, a better headline should give USD support, a weaker than expected reading could see the USD ending the week on a low.

Next week we’ll have the latest CPI inflation numbers from the US.  We will also see UK and EU GDP, plus US retail sales, certainly enough to keep us on our toes.  Until then, have a great weekend as and when it comes, next couple of days could be a bit drizzly but Sunday should be dry with a bit of sunshine, might have to get out in the garden for a spot of tidying up. 

Have a great day…

-  12.15 BoEs Pill speaks

-  13.30 US nonfarm payrolls

-  13.30 CAD unemployment

-  14.25 Feds Bowman speaks

-  17.00 Feds Kugler speaks

Eyes turn to BoE, how many members will vote for a 25bps cut

Good morning

More USD weakness for much if the day yesterday, GBPUSD reached a heady 1.2550 in the morning although the pair did drift off in the afternoon, preferring to focus on the stronger than expected ADP employment number than the lower US ISM services PMI headline.  It ended the London session around 1.2515.  EURUSD reached 1.0440 at one stage yesterday but was also lower a touch by the close, around 1.0420.  EUR made a small bit of ground on GBP through the day, reaching 1.2000 at one stage although it was 10 pips or so up from those lows by the close. 

The US dollar remained weak until the early hours of this morning when USD buyers remerged and sent both GBPUSD and EURUSD lower once again, reaching 1.2455 and 1.0365 respectively.  Some are putting this strength down to comments from US Treasury Secretary Bessent who said Trump was not calling for Fed rate cuts.

USDJPY saw more impact from the weaker ISM PMIs, the pair traded down to 151.80 overnight, helped by further talks of faster rate rises through 2025, although has since recovered to 152.60 on this mornings USD push higher.

Aussie trade surplus was healthy but at AU$ 5.1bn was well below expectations which were in the AU$7bn area.  The previous months data was revised lower but overall the impact on AUD has been minimal, AUDUSD falling to 0.6260 more in line with this USD strength, while GBPAUD has slipped to 1.9900 from an overnight high of 1.9950.

Trump has explained his recent Gaza announcement in perhaps better detail, suggesting the citizens of Gaza only need to relocate temporarily while US go in, clear the rubble and rebuild until the time is right for them to return.  Trump’s attention is also on Ukraine where he is hoping to broker a peace deal that is likely to give Russia the ground it has already taken with an assurance somehow that Russia will not attack again.

Today brings more EU retail sales and US jobs data, initial claims and Challenger cuts, but the main event will be on BoE where a 25bps cut in rates to 4.5% is widely expected with a near unanimous 8-1 vote.  It’s not easy for BoE, lower growth and an uncertain economic outlook should make a rate cut a simple decision but inflation still persists and there is a chance we’ll see more BoE officials siding with Mann who is likely to dissent, calling for no change in rates.  Regardless, I’d expect BoE to signal some caution over further rate cut expectations.

Through the afternoon we’ll have some central bank speakers from ECB and Fed, then in the early hours of tomorrow morning we’ll have the latest RBI rate announcement.  A 25bps cut to 6.25% looks on the cards.  INR has weakened since the turn of the year, with USDINR moving up from 86.50 to a high of almost 87.60, while GBPINR has been more volatile, seeing a range between 104.50 and 109.50, give or take a few points.  Indeed this week alone we have seen a move from 106.10 up to those mid-109s. 

Newcastle beat Arsenal last night to take them into the League Cup final, their opponents will be decided this evening as Spurs take on Liverpool/  Spurs have the advantage of a one goal lead from the first leg but we all know there is quite a vast difference between the current performance levels of each side.  Liverpool do need to score, I don’t think that will be too difficult for them but the longer Spurs can hold out the more risks Liverpool may need to take.  You  won’t be surprised to hear I’m not overly confident.

Ah, and Leeds extended their lead at the top of the Championship with a win over Coventry last night.  Mark will be ion a good mood today if anyone has any small, annoying balances they need us to take care of….

Have a great day

-  10.00 EU retail sales

-  12.00 BoE rate announcement

-  12.30 BoE press conference

-  12.30 US challenger job cuts

-  13.30 US initial jobless claims

-  15.00 CAD Ivey PMI

-  16.15 ECBs Nagel speaks

-  19.30 Feds Waller speaks

-  20.30 Feds Daly speaks

-  22.00 BoCs Macklem speaks

-  04.30 RBI rate announcement

USD continues to look soft as Trump takes foot off tariff pedal for now

Good morning

Yesterdays US JOLTS job report came out on the weaker side of expectations which helped push USD lower.  This particular release isn’t really an indicator for the nonfarms which are still expected to show a decent rise on Friday, but perhaps gives us an idea that some softening in the US labour market can be expected.

So, GBPUSD is back to where it was around a week ago, in the high 1.24s, while EURUSD is back where it was just last Friday, around 1.0390.  USDCAD has seen a rollercoaster over the past week, from 1.4340 or so all the way up to almost 1.4800, and now back down again to the low 1.43s.  It’s almost as though Trump’s recent tariff announcements didn’t take place at all.  Worth remembering though that, for the time being at least, tariffs are only paused rather than cancelled, so what will happen in a months time remains to be seen. 

Trump isn’t just about tariffs.  He is now talking about taking over Gaza as well as Greenland and even possibly Canada.  On Gaza, he said he’d resettle Palestinians in parts of Egypt and Jordan, something neither country is happy with, let alone the Palestinians themselves.  An interesting comment from Tump, that’s for sure.  Elsewhere, Trump and Xi won’t be talking as planned, that was cancelled after China imposed retaliatory tariffs on certain US products.  Hong Kong and China markets reopened after a week or so holiday, no surprise that equities there were marked lower.  

What I do find interesting is that US postal service has suspended parcels from China and Hong Kong until  further notice.  I’m not sure of the details here but I know I’d be pretty unhappy if I’d ordered and paid for goods that were then blocked.  I presume the recipents will eventually have to pay some sort of fee to have their packages delivered.

We’ve still not heard what tariffs Trump will impose on the EU, if any. While Mexico and Canada have fallen into line with Trump’s demand pretty easily on order to postpone tariffs, it may be harder for the EU to do so as and when they come.  With EURUSD now looking at 1.0400, and US rate cuts looking less likely, I do wonder whether we should be looking at downside EURUSD trade ideas, just in case.  I’ll do some investigation, let me know if you’re interested. 

In Japan, talk of more rate rises this year, combined with the generally softer USD, has sent USDJPY down to almost 153.00, the lowest level since mid-Dec.  GBPJPY is 191.55 as I type.  And overnight, NZ jobs data didn’t make great reading, with the unemployment rate ticking up to a four year high of 5.1% although NZD is actually off the lows against GBP at 2.2010, as is their neighbour AUD which is currently hovering around the 1.9900 area.

The UK is facing a tough time right now.  It is reported that the OBR may downgrade UK growth forecasts from 1.1% to close to 0.7% for 2024, and from 2% to 1.3% for 2025.  Not great reading for Reeves who has been warned she’ll most likely have to cut spending or raise taxes.  Also not making good reading is this idea we may pay Mauritius some £18bn over the Chagos Islands, almost double the initial number, although Starmer has denied this is the case.  Starmer has been under a great deal of pressure recently, his meeting with his oral coach over lockdown is in focus at the moment but there are plenty of other issues the general public are not happy with.

Football this evening sees Newcastle take on Arsenal in the second leg of the League Cup semi-final.  Newcastle have a 2-0 lead from the first leg but Arsenal have been in fine form recently and will be desperate to overturn that deficit.  Spurs take on Liverpool in the next semi-final tomorrow.  Meanwhile Leeds Utd, who as you know I have something of an obligation to mention, could extend their lead at the top of the Championship with a win over Coventry this evening. 

So, US PMI numbers and a few Fed officials are the main event today, we do also have the US ADP employment change data this afternoon which is the one that has previously been talked about as a nonfarm indicator although I’m not sure its ever been very good at that.  Tomorrow we’ll have the BoE rate announcement where it is likely we’ll see a 25bps cut. 

As I finish this, GBPUSD has popped just above 1.2500, EURUSD just above 1.0400, leaving GBPEUR around 1.2020. 

Have a great day…

-  09.00 EU composite PMI

-  10.00 EU PPI

-  13.15 US ADP employment

-  14.00 ECBs Lane speaks

-  14.45 US S&P composite PMI

-  15.00 US ISM services PMI

-  18.00 Feds Goolsbee speaks

-  20.00 Feds Bowman speaks

-  00.30 AUS trade balance

-  00.30 Feds Jefferson speaks