Pound mixed amid economic optimism and BoE rate cut bets

Pound (GBP) mixed following revised IMF forecasts

The pound (GBP) traded in a wide range yesterday as economic optimism and Bank of England (BoE) interest rate cut bets pulled the currency in different directions.

While the International Monetary Fund (IMF) raised its 2024 growth forecast for the UK, it also said that the BoE should cut rates two or three times this year.

This morning, the UK’s latest consumer price index exceeded expectations. Both headline and core inflation eased less than expected in April, with the former dropping from 3.2% to 2.3%, versus forecasts of 2.1%. The pound has leapt higher in response as markets trim BoE June rate cut bets.

Euro (EUR) pressured by falling German PPI

The euro (EUR) faced some resistance yesterday after Germany’s latest producer price inflation figure came in below forecasts.

On an annual basis, PPI fell 3.3% in April, more than the expected fall of 3.2%. As producer prices tend to feed through into headline inflation, this data added to bets that the European Central Bank (ECB) will cut interest rates multiple times this year.

Turning to today, ECB President Christine Lagarde is due to deliver a speech this morning. Could dovish comments from the ECB chief see the euro stumble?

US dollar (USD) unclear in absence of data

The US dollar (USD) wavered without a clear direction yesterday as a lack of market-moving US data and hesitancy ahead of tonight’s meeting minutes from the Federal Reserve kept the ‘greenback’ subdued.

Meanwhile, a decline in US Treasury bond yields put some pressure on USD, but moderately hawkish remarks from some Fed policymakers offset the downside.

Looking ahead, all eyes are on the FOMC’s policy meeting minutes, which will be published this evening. If they show that policymakers are open to multiple rate cuts this year, the US dollar may weaken.

Canadian dollar (CAD) tumbles following cooler inflation figures

The Canadian dollar (CAD) slumped yesterday after Canada’s latest CPI showed a shock cooldown in core inflation, from 2% to 1.6%, paired with a more modest decline in headline inflation. This boosted bets on coming interest rate cuts from the Bank of Canada (BoC).

With Canadian economic data thin on the ground today, CAD’s fortunes may be tied to USD and oil price dynamics. An ongoing decline in oil could pressure the ‘loonie’.

Australian dollar (AUD) wobbles amid mixed mood

A mixed market mood and lack of domestic data saw the Australian dollar (AUD) waver in overnight trade.

New Zealand dollar (NZD) leaps on hawkish RBNZ

The New Zealand dollar (NZD) jumped last night following surprisingly hawkish forward guidance from the Reserve Bank of New Zealand (RBNZ). The bank left rates unchanged but hinted at another hike in the future and pushed back forecasts for interest rate cuts.

Samuel Birnie

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