Foreign Exchange Analysis ~ 09 May 2023
GB Pound
What happened last week?
↑ Sterling sat back and watched both the ECB and Fed boost their respective currencies ahead of the BOE meeting this week.
What to watch for in the short-term?
↓ With the Bank of England meeting this week expected to see yet another 0.25% increase in the base rate, conversations naturally switch to what next?
This month’s meeting is also a quarterly statement and will allow the BOE to put forward further expectations and forecasts for the UK economy; a sure fire hint at what to expect from rates decisions for the next 6 months or so.
We think that language will be couched to allow for 2-way risk on sterling assets but that rate hikes are reaching a natural top.
What about the coming months? ↓ With swaps still pricing in three further 25bps increases from current levels, there remains a significant level of potential disappointment to sterling and gilts through the 2nd half of the year.
Calendar
Thursday 12.00 BST | Bank of England meeting
US Dollar
What happened last week?
↓ Fed Chair Powell set up the three things that will govern USD strength in the coming months; Local and global data, US banking pressures and speeches from Fed members.
What to watch for in the short-term?
↓ The Fed meeting last week set up a pretty interesting dynamic heading into the summer; currently there are near on 70bps of cuts priced into the dollar through to the end of the year although Fed Chair Powell made sure to set up optionality of a pause in hikes against the prospect of cuts.
This month’s jobs number showed a gain of 253,000 and even with a downward revision to the previous month, this is not a job market showing weakness . Alongside that report the average hourly earnings does not suggest CPI is going to slow down as fast as the Fed wants either.
What about the coming months? ↑ Debt ceiling chatter is not far from the front of mind in the States with a meeting at the White House tomorrow.
Calendar
Wednesday 13.30 BST | US CPI
Euro
What happened last week?
↑ An ECB meeting that suggested further hikes may have been enough to see 1.10 become a level of support for the euro, in its bid for additional gains.
What to watch for in the short-term?
↑ With the ECB purdah period over now, we can expect a number of speakers from the central bank break cover and make sure to tell markets just how much they agree with the overall decision of the ECB to not pause additional rate hikes.
One thing that has allowed the single currency to outperform a number of G10 currencies this year has been the unanimity of the Governing Council. We see this being at risk in the coming months and alongside the strong positioning in favour of the currency, may just add a slight weight to EUR advances.
What about the coming months? ↑ Heading into the summer and August’s central bank meetings in Sintra/Jackson Hole, we expect no great changes in rhetoric from the ECB until Q3. A pause is coming but not for another few months in our expectations.
Calendar
Wednesday 07.00 BST | German CPI
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