Good morning
GBP has slumped after the BoE cut rates 25bps to 5% in a tight 5-4 vote as had been expected. GBPUSD is now 1.2715, GBPEUR 1.1780, down from the levels we were at this time yesterday and certainly down from the heady heights we had one week ago which saw GBPUSD over 1.3000. Bailey, and then Pill a bit later, made it clear we should not get too excited about the prospect of further cuts, certainly the speed and timing of them. Inflation is likely to have bumps in the road ahead and we should not necessarily expect successive cuts at each meeting from here. Still, I believe we will see another cut later in the year, particularly if the Fed start to cut rates as well.
However, the GBP move is a little odd. GBPUSD had actually pushed higher after the announcement, USD losing ground on weaker than expected ISM data which led to increased talk of a possible 50bps rate cut as and when they do finally act, most likely September. At 3pm, some three hours after the BoE announcement, GBPUSD was up at 1.2840. Only after that did GBP begin to head towards, and then break, the lows seen earlier in the morning.
Perhaps the markets needed time to digest the BoE decision, but the move coincided with a sharp drop in equity prices, the FTSE100 fell from 8,400 to 8,260 or so which, after a rate cut is surprising but it smells as though something isn’t right. Is the rate cut less to do with inflation and more to do with helping an ailing economy? Is the UK political scene creating uncertainties?
But It wasn’t just UK stocks that were lower. US indices closed over 1% down, Asian markets have seen some huge falls, with Japan’s Nikkei down almost 6%, that move fuelled in part by talk of further rate rises, while USDJPY is down at 149.00. With Gold prices at $2,460 I cannot help but think geopolitical risks are increasing, and maybe markets are planning for an escalation in hostilities between Iran and Israel.
In other news, a surprise prisoner swap has taken place between Russia and the West, a deal that some reports suggest has been negotiated for a couple of years, all the more surprising given the soured Russia/West relationship since the invasion of Ukraine.
US nonfarm payrolls in the key today, consensus seems to be for a headliner of +175k although I have seen a couple of big banks this morning favour something closer to +150k. Still a fairly strong number mind you. The unemployment rate is expected to hold at 4.1% with average hourly earnings drifting lower to 3.7%. There is a good chance USD will react strongly to firmer or weaker data.
The weather has cooled off a bit as we head towards the weekend, we did have some rain but not much in the way of thunderstorms. Today should be warm again, tomorrow less so, but I’m OK with low to mid-20’s. Stitches came out yesterday and although full recovery will take some time, I do need to get back out on the garden to mow the lawn which desperately needs a cut having been neglected for a couple of weeks. That bit of rain seems to have helped add another couple of centimetres.
Sport over the weekend really revolves around the Olympics. Some more athletics today including the mixed 4x400 metre relay which can be fun plus round one of the women’s 100metre. Plenty more action Saturday and Sunday.
Have a great weekend…..
- 12.15 BoEs Pill speaks
- 13.30 US nonfarm payrolls
Comments