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GBP up after UK unemployment numbers, await US CPI

Good morning

GBP dropped from its highs against USD and EUR yesterday but had a lift this morning after better than expected UK unemployment numbers. GBPUSD is back up to 1.2565 having traded to 1.2490 while GBPEUR is at 1.1635 having been to 1.1610, still well off the 1.17+ levels we saw yesterday morning. EUR seems to be finding some support ahead of the ECB rate announcement, with EURUSD 1.0800.

BoEs Mann yesterday said it is difficult for central banks to fine tune the end of rate rises. RBA and BoC are good examples of this and while central banks try to give guidance over their rate moves, this guidance is not set in stone. She did add that inflation in the UK seems stickier than in the EU or US. BoEs Bailey testifies to the House Lords this afternoon.

Asian markets followed suit, helped as well by a Chinese cut in the 7 day repo rate from 2.0 to 1.9%. A rate cut in China has been on the cards for a while but even so this took the markets by surprise. USDCNY fixed 7.1498, nearly 300 points higher than yesterday and the highest fix since end Nov 2022.

US CPI numbers are the key now for today. Regular readers will remember I have mentioned the Adobe Digital Price Index a few times in recent months, it came out yesterday considerably softer, falling 2.3%. This doesn’t really predict CPI but it gives us an idea that CPI may be softer and as such the Fed’s idea to ‘skip’ a rate rise this week could be supported. US stocks closed strongly yesterday with the S&P up almost 1% and NASDAQ up 1.5%. Those who forecast sharp declines in equities are feeling a bit of pain, for the time being at least.

Early tomorrow morning we will have UK GDP numbers which should show a small pickup from last month. This will support the idea that BoE will raise rates next week to 4.75% and lift rates further through the summer. Several leading bodies have suggested a recession is no longer on the cards.

It looks like being another glorious day with temperatures up near the 30’s, indeed the rest of this week is forecast to be sunshine with none of the warnings of thunderstorms we’ve had over the past few days. Lovely….if it wasn’t for the fact we have to work…..

- 10.00 German ZEW

- 12.00 UK NIESR GDP

- 13.30 US CPI

- 15.00 BoEs Bailey speaks

- 07.00 UK GDP, industrial production

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