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GBP Makes Move Higher Following BOE’s Pill, NZD Remains Lower

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  • Bank of England’s Pill provided no explicit signals for an August cut and markets took advantage of this to react hawkishly, and further bolster GBP’s outperformance this year. GBPUSD printed a new daily high at 1.2847, while August BoE pricing backtracked moderately. Resistance at 1.2846 and 1.2860 have capped the upside for now. Above here, 1.2894 marks the March 8 high and represents a key resistance.
  • EUR/GBP 3m vols capture not only possible policy moves at upcoming BoE and ECB meetings, but also the near-term risks present across both the French and UK parliaments. While vols have normalized considerably (back to ~4 points from mid-June's ~6 points) since Macron's snap election call, there remains a bias toward downside insurance via options, evident in both the popularity of EUR/GBP puts, and the 0.25ppts gap between 3m risk reversals and the rolling 12m average.
  • This is consistent with EURGBP steadily edging lower following the test of 0.8500 last week, a key pivot that marked strong resistance for the cross. Below here, 0.8397, the Jun 14 low represents the bear trigger.
  • NZD remains the weakest in G10, falling against all others in G10 space after the dovish turn from the RBNZ. While the bank kept rates unchanged, they moderated their language on future policy considerably, suggesting that rates could be eased as inflation slows. AUD/NZD traded a new YTD high at 1.1103 - and holds the bulk of those gains into the APAC crossover.
  • Elsewhere, the Yen remains under pressure and USDJPY resides close to 1.6180 approaching the APAC crossover. The pair is just 15 pips shy of the multi-decade cycle highs and keeps markets alert for any signs of MOF intervention.
  • The key data release this week of US inflation for June takes place Thursday. Consensus sees core CPI at 0.2% M/M in June after the softer than expected 0.16% M/M in May (vs cons 0.3), with a mild skew toward a “high” 0.2%, per MNI’s compilation of sell-side previews. Notably, there is an unusually wide range of estimates for core this month.
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  • Bank of England’s Pill provided no explicit signals for an August cut and markets took advantage of this to react hawkishly, and further bolster GBP’s outperformance this year. GBPUSD printed a new daily high at 1.2847, while August BoE pricing backtracked moderately. Resistance at 1.2846 and 1.2860 have capped the upside for now. Above here, 1.2894 marks the March 8 high and represents a key resistance.
  • EUR/GBP 3m vols capture not only possible policy moves at upcoming BoE and ECB meetings, but also the near-term risks present across both the French and UK parliaments. While vols have normalized considerably (back to ~4 points from mid-June's ~6 points) since Macron's snap election call, there remains a bias toward downside insurance via options, evident in both the popularity of EUR/GBP puts, and the 0.25ppts gap between 3m risk reversals and the rolling 12m average.
  • This is consistent with EURGBP steadily edging lower following the test of 0.8500 last week, a key pivot that marked strong resistance for the cross. Below here, 0.8397, the Jun 14 low represents the bear trigger.
  • NZD remains the weakest in G10, falling against all others in G10 space after the dovish turn from the RBNZ. While the bank kept rates unchanged, they moderated their language on future policy considerably, suggesting that rates could be eased as inflation slows. AUD/NZD traded a new YTD high at 1.1103 - and holds the bulk of those gains into the APAC crossover.
  • Elsewhere, the Yen remains under pressure and USDJPY resides close to 1.6180 approaching the APAC crossover. The pair is just 15 pips shy of the multi-decade cycle highs and keeps markets alert for any signs of MOF intervention.
  • The key data release this week of US inflation for June takes place Thursday. Consensus sees core CPI at 0.2% M/M in June after the softer than expected 0.16% M/M in May (vs cons 0.3), with a mild skew toward a “high” 0.2%, per MNI’s compilation of sell-side previews. Notably, there is an unusually wide range of estimates for core this month.