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GBP remains under pressure, ECB to cut rates today

richard evans

Good morning

 

GBP remains under pressure after yesterdays UK inflation numbers that surprised to the downside.  GBPUSD did get back up to 1.3035 yesterday afternoon but soon lost those gains and slipped back below 1.3000, this morning it has made new lows of 1.2975, although it has held up better against EUR with GBPEUR now 1.1965.

 

With inflation very much in focus right now, some attention will be placed on this mornings release of EU HICP, however the key will of course be the ECB rate announcement this afternoon, at which they are expected to cut rates 25bps to 3.25%.  This would follow cuts of 25bps in June and September this year, which took rates off their 4% peak.  EURUSD is currently 1.0850, the lowest levels since early August  

 

We could see some EUR weakness on the back of the rate announcement although the move is widely priced in.  Attention could instead be focussed on Lagarde’s wording at the press conference that follows.  There is thinking that some of the hawkish members will push for a more cautiously worded statement, so Lagarde may continue with the ‘rates are data dependent’ theme rather than hint at further cuts.  If so, EUR losses could be contained. 

 

Overnight, Aussie employment numbers came in on the strong side with full time employment rising by 64,000, far more than forecast.  The unemployment rate was lower than expected at 4.1%, the previous month rate was also revised lower.  The release was enough to send AUD higher, AUDUSD moved up from 0.6665 to a peak of 0.6710, AUDNZD climbed from 1.1000 to 1.1045 and GBPAUD dropped from 1.9490 to 1.9375. 

 

AUD has since lost much of those gains following a disappointing China press conference regarding property market stimulus.  However the numbers were probably enough to convince RBA that rates will be kept on hold into year-end and perhaps even into Q2 2025.

 

It’s a reasonable day for US data today, the key perhaps being retail sales which are expected to show a small uptick from last months pretty dismal number.  Philly fed survey and initial jobless claims are out at the same time.

 

Overnight we’ll get the latest China GDP readings, then early tomorrow morning we will have UK retail sales.  The y/y numbers are expected to show gains, we’re looking for a headline of 3.2%.  Whether that is enough to offer any support to GBP remains to be seen.

 

GB won both yesterdays races in the Americas cup to bring them back into contention and ensure racing continues into the weekend, although we are still 4-2 down.  No racing scheduled for today.

 

Its another exciting test match between England Pakistan.  England saw something of a collapse from 211-3 to 291 all out, following Pakistans first innings total of 366.  They are currently 47-3 in their second innings, a lead of just 122 as I type.  Its going to be an interesting third day.

 

Have a great day

 

-  10.00 EU HICP

-  12.00 Turkey rate announcement

-  13.15 ECB rate announcement

-  13.30 US retail sales, philly fed survey, initial jobless claims

-  13.45 ECB press conference

-  14.00 Feds Goolsbee speaks

-  14.15 US industrial production

-  00.30 Japan CPI

-  03.00 China GDP, industrial production, retail sales

-  07.00 UK retail sales

 

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