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GBP Supported Following Hot UK CPI, Election Announcement Has Little Impact

FOREX
  • Higher US yields and slightly lower equities offered moderate support to the greenback on Wednesday as markets awaited the FOMC minutes release. However, action across G10 was mixed amid central bank action and notable data releases.
  • GBP was the early outperformer on the back of the hotter-than-expected UK inflation print, with the services CPI component of particular interest, and seen limiting the Bank of England's ability to cut rates as soon as June. Markets now price fewer than 2 full 25bps rate cuts across 2024, helping underpin GBP's outperformance into the NY crossover.
  • Despite reversing in early US trade, cable has edged back towards the earlier highs of 1.2761, as the UK announced a snap general election, to be held on July 04. Wednesday’s move lower in EURGBP has resulted in a break of support at 0.8531, the Apr 30 low, and confirms an extension of the reversal that started May 9. The daily low intersects with 0.8504, the Mar 8 low and exposes 0.8498, the Feb 14 low.
  • NZD also continues to outperform G10 peers on the more hawkish-than-expected RBNZ decision, at which the bank kept rates unchanged but signalled that policy would be kept much tighter, for much longer, and could even resume raising interest rates until inflation and inflation expectations are curtailed.
  • Price action on Wednesday also saw EURNZD trade down to the lowest level since March 11, closely coinciding with a test of trendline support, drawn from the December 2022 lows as well as exactly matching the 38.2 Fibonacci retracement of the Dec 2022/Aug 2023 price swing.
  • RBNZ Governor Orr will kick off Thursday’s event risk before New Zealand report retail sales for Q1. Eurozone flash PMIs then headline the calendar before US jobless claims and new home sales also cross.
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