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GBP, NZD On Top as Gap For Policy Easing Narrows

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  • GBP surged 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.
  • GBP/USD rallied sharply on release to touch a new daily high of 1.2761. While the move has faded somewhat, the continued heaviness with which EUR/GBP is trading shows that it's a USD recovery - rather than any reversal of interpretation in the UK inflation reading.
  • NZD is outpacing broader G10 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. Forecasted cuts are now seen well into 2025, communications that have sent AUD/NZD to new one month lows. The cross tested support at 1.0857 before rebounding.
  • The Fed minutes and existing home sales data take focus ahead. The moderation in inflation in April clearly came as a relief to several FOMC participants, most of whom saw the data as encouraging after a hot Q1 – but still needed more evidence before cutting rates. In the minutes, any discussion of the burden of proof for cuts will therefore be closely scrutinized.
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  • GBP surged 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.
  • GBP/USD rallied sharply on release to touch a new daily high of 1.2761. While the move has faded somewhat, the continued heaviness with which EUR/GBP is trading shows that it's a USD recovery - rather than any reversal of interpretation in the UK inflation reading.
  • NZD is outpacing broader G10 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. Forecasted cuts are now seen well into 2025, communications that have sent AUD/NZD to new one month lows. The cross tested support at 1.0857 before rebounding.
  • The Fed minutes and existing home sales data take focus ahead. The moderation in inflation in April clearly came as a relief to several FOMC participants, most of whom saw the data as encouraging after a hot Q1 – but still needed more evidence before cutting rates. In the minutes, any discussion of the burden of proof for cuts will therefore be closely scrutinized.