U.S. Data Continues To Have Meaningful Influence On BoE Pricing

As we have already noted, UK FI markets once again prove susceptible to U.S. developments, with the firmer-than-expected U.S. Q1 ECI data providing the latest ‘hawkish’ input from across the Atlantic.

• The move higher in the prices paid component of the MNI Chicago PMI release then counters any impact from a softer-than-expected headline Chicago PMI release, which tops a relatively downbeat survey.
• That leaves market-implied pricing for the BoE & FOMC policy rate paths relatively close to hawkish session extremes.
• SONIA futures last flat to -8.5, with the back of the reds leading the sell off.
• 41bp of ’24 cuts are priced into BoE-dated OIS, with the first 25bp step just about fully priced come the end of the Sep MPC.
• Plenty of desks argue that GBP STIRs have exhibited an exaggerated beta to the recent U.S. data developments and hawkish Fed repricing. While we don’t disagree, further slowing of the UK CPI/wage pressures and related BoE communique is probably required to trigger greater divergence in Fed & BoE pricing.