GBP/USD Reined In as Governor Bailey Leaves Policy Options Open
The pair started the day strong, but erases much of its earlier gains, as BoE Governor Bailey does not commit to more rate increases
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The pair started the day strong, but erases much of its earlier gains, as BoE Governor Bailey does not commit to more rate increases
Overnight, Australian CPI y/y showed signs of moderation, printing at 7.4%, lower than the expected 8.1% and the previous 8.4%. GDP was also softer at 0.5% q/q - 0.8% q/q was expected. After the release, the spread between the AU and US 2-year notes declined (red rectangle). This suggests that the RBA is less hawkish than the Fed. Markets still expects the RBA to lift rates next week, even if…
Watch today’s US Open for commentary on the recent hotter than expected US PCE inflation, the EU/UK trade agreement over Northern Ireland and more
FXCM’s dollar basket is trading in its bullish channel between the upper blue and red bands. This is in the daily timeframe. Its stochastic is trading above 80. This denotes a strong underlying upwards momentum.
The top chart shows the US 10-Year real rate and the middle chart is the EURUSD. The correlation coefficient (cc) between the two series is -61% (bottom indicator). This correlation does not always hold true, but it has been the dominant relationship since March 2022.
Core PCE ticked up to 4.7% y/y from the previous 4.6% y/y. Markets are now betting on 25bps hikes by the Fed for March, May and June, which would take the target rate to the 5.25%-5.50% range. The monthly core PCE printed at 0.6% m/m, greater than the previous 0.4% m/m and larger than the 0.4% consensus. Annualised, this gives a worrying 7.44%, much higher than the Fed 2% average…
Money is seeking the safety of the dollar ahead of the core PCE release. On the hourly chart, the trend following EMAs and the momentum-based stochastic have crossed up. Market participants are worried that inflation remains resilient. Here, the Fed will need to remain hawkish and tighten further, which will negatively affect the present value of risk assets.
The pair is choppy amidst another surge in Japan’s inflation and comments from the BoJ Governor nominee, as markets now brace for the US PCE inflation update
Watch today’s US Open for commentary on Nvidia’s AI-boosted forward guidance, the FOMC minutes and yesterday’s RBNZ policy decision
The pair trades with caution as investors appear to be on the sidelines, awaiting today’s accounts of the Fed’s last policy meeting, amidst heightened expectations around the terminal rate
GBPUSD has charted a lower peak followed by a lower trough on the daily time frame (left). This is a defined down trend. Yesterday, GBPUSD appreciated following its flash PMI beats. However, there is no follow through today.
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