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  • richard evans

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

 

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