Fed Repricing Maxing Out Post US Base Rate Expectation

GBP/USD rises as UK inflation prints above expectations

GBP

The Pound to US Dollar (GBP/USD) exchange rate rose on Wednesday, as the latest batch of UK inflation data printed above forecasts. At the time of writing, GBP/USD traded at around $1.2465, an increase of just over 0.2% from Wednesday’s opening levels. Headline inflation printed at 3.2% in March, showing a cooldown from the previous reading of 3.4%. However, as markets were anticipating a 3.1% reading, this indicated that inflationary pressures may have been more persistent than anticipated. Markets began to expect that the BoE may only pursue one interest rate cut in 2024, down from the previous expectation of three cuts. Looking ahead for the Pound, the core catalyst of movement is likely to be March’s latest retail sales data, which is due for publication on Friday. Compared to February’s levels, retail sales are forecast to have increased by 0.3%, which could benefit Sterling by suggesting that consumer spending was on an upswing, which may suggest economic resilience and further postpone existing Bank of England interest rate cut bets.

No Major Data

EU inflation data bolsters case for June rate cut

EUR

Recent developments have seen the Fed delay the start of its rate-cutting cycle due to hotter-than-expected inflation data and a resilient economy, including a robust labour market. This has led to a prolonged period of higher interest rates in the US, which has put pressure on the Euro. In contrast, ECB officials have expressed a preference for a rate cut in June as the governing council gears up to move before the Fed. Traditionally major central banks look to the Fed for that first move and subsequently follow shortly after. EUR/USD attempts to halt the recent US CPI-inspired sell-off. The pair has come under pressure after Fed officials signaled a reluctance to cut the Fed funds rate in the face of stubborn inflation. Nevertheless, the pair attempts to arrest the recent decline, recovering from oversold territory. The shorter-term pullback at extreme levels is not uncommon but the longer-term outlook suggests a further decline is possible. The Euro rallied slightly during the trading session on Wednesday in the early hours, as it looks like markets are trying to get back to the $1.0700 level.

Major Data:

ECB's De Guindos speech

Construction Output s.a (MoM)(YoY)(Feb)

German Buba President Nagel speech: 13:00

USD pulls away from multi-month highs ahead of mid-tier data

USD

The USD stays under modest selling pressure in the early European session today. The US economic calendar will offer weekly Initial Jobless Claims, Philadelphia Fed Manufacturing Survey for April and Existing Home Sales data for March. Several Federal Reserve (Fed) policymakers are scheduled to deliver speeches during the American trading hours. The USD Index stays in negative territory below 106.00 after touching its highest level since early November at 106.50 on Wednesday. Following a sharp decline midweek, the benchmark 10-year US Treasury bond yield fluctuates below 4.6%. Meanwhile, US stock index futures trade in positive territory, reflecting an improving risk mood in the European morning. Major pairs saw movement against the Dollar in the last 24 hours, EUR/USD rebounded decisively and gained 0.5% on Wednesday, the pair holds its ground early today and trades slightly below $1.0700. While GBP/USD registered marginal gains on Wednesday and started to fluctuate in a narrow range above $1.2450 today.

Major Data:

Continuing Jobless Claims(Apr 5)

Initial Jobless Claims(Apr 12)

Philadelphia Fed Manufacturing Survey(Apr): Exp 1.5

Fed's Bowman, Williams speech: 14:05

Existing Home Sales (MoM)(Mar): Exp 4.2m