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EUR GBP - FUNDAMENTAL ANALYSISForeign exchange analysts at ING have updated their latest currency forecasts and predictions for the Pound Sterling Sterling will be influenced by global economic and financial conditions. It notes; “Sterling’s correlation with risk assets has fallen a lot this year – a factor probably helping sterling at the moment.” The Pound will still tend to be vulnerable if global risk conditions deteriorate. The principal element behind ING’s Sterling call is that the Bank of England (BoE) interest rates have reached a peak at 4.50%. Overall, it expects that signs of moderation in inflation and a tighter labour market will allow the BoE to avoid further rate increases. In this context, it expects a BoE re-pricing and lower yields will undermine the Pound. It adds; “If we’re right with our BoE call, EUR/GBP should be trading towards 0.88 by the end of June. We suspect that the effects of prior tightening will start to show up, via higher mortgage refinancing costs, in 2H23 and pitch a weak UK activity story.” EUR/GBP is forecast to strengthen to 0.90 on a 6-12 month view.
Long
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3
GBP JPY - FUNDAMENTAL ANALYSISJapan: High expectations for Q1 GDP, with persistent inflation concerns Japan’s preliminary GDP for Q1 is due on Wednesday and will provide the latest insight into the health of the economy. Bloomberg consensus expects an improvement to 0.8% Q/Q annualized from 0.1% in Q4 when the economy narrowly avoided a recession. While a broader reopening of the economy in the first quarter and the return of some Chinese tourists may have meant a further uptick in the services sector, exports and manufacturing likely remained weak on the back of weakness in global demand. If domestic consumption weakens substantially despite the government travel subsidies and high winter bonuses, it could continue to highlight the risk of a recession. April CPI will also be released on Friday which will likely confirm that price pressures remain concerning. Tokyo CPI for April had come in above expectations despite the falling commodity prices and the base effect. Bloomberg consensus expects national CPI for April to come in at 3.5% for the headline from 3.2% previously while the core-core measure (ex-fresh food and energy) is expected to rise to 4.2% from 3.8% in March.
Short
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GBP USD - FUNDAMENTAL ANALYSISThe BoE's Policy Implications One noteworthy factor contributing to this optimistic outlook is the BoE's latest meeting. Despite the upgraded forecasts for growth and inflation indicating a higher threshold for the incoming data to surpass, it also hints at the risk of more persistent inflation that might necessitate further monetary policy tightening. "While the Bank’s significant forecast upgrades to growth and inflation present a higher bar for the incoming data to beat, it also reflects the risk of higher inflation persistence that would require additional monetary policy tightening," says Trivedi. The BoE's dovish leanings, as revealed in the press conference, including Governor Bailey’s comment that “we have no bias at the moment,” might seem to soften the outlook. However, the Bank's projections suggest a higher likelihood of further rate hikes, aligning with Goldman Sachs' economists' expectations for a firm labour market, robust wage growth, and solid services inflation data. "The press conference offered more dovish bits, including Governor Bailey’s comment that 'we have no bias at the moment'," he adds. The BoE's Aligned Stance and GBP's Positive Impulse In a more detailed exploration of the Bank of England's forward guidance, Trivedi uncovers potential trajectories that underscore the possibility of more interest rate increases. The Bank's projections seem to hint at a stronger chance of additional hikes, a viewpoint that aligns with Goldman Sachs' team of economists. They anticipate that robust statistics in the labour market, wage increases, and stable inflation within the services sector will likely act as catalysts for further policy tightening. "However, the Bank’s projections imply a greater likelihood of further hikes, consistent with our own economists’ expectation for the labour market, wage growth, and services inflation data to remain firm—likely pushing the BoE to hike by another 25bp in both June and August to a terminal rate of 5% (above current market pricing)." Trivedi adds. A significant turning point for the Pound's near-term outlook is the shift in the BoE's policy stance, which is no longer deviating markedly from other G10 central banks. "Most importantly, the BoE’s policy stance is no longer an outlier in the G10, shifting the previously negative impulse on the currency to a positive one," Trivedi remarks.
Long
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GBP USD - FUNDAMENTAL ANALYSISUK: Labor data to keep Bank of England expectations hawkish The Bank of England has made it clear that the decision on June rate hike will be underpinned by the two sets of wage and inflation data out before the next meeting. The first of these unemployment and wage numbers will be out on Tuesday, with consensus expectations not suggesting any let up in concerns yet. Expectations are for the unemployment rate in the three months to March to hold steady at 3.8%, employment change to remain at 160k from 169k and headline earnings growth to also remain steady at 5.8% from 5.9%, whilst the ex-bonus metric is seen firming up to 6.8% from 6.6%. Firmer data could bring the expectation for a June rate hike from Bank of England higher from a 69% probability for now and bring the focus also on next CPI release on May 24. EURGBP remains on the verge of a breakout on the downside after trading in a range since the start of the year.
Long
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EUR GBP - FUNDAMENTAL ANALYSISUK: Labor data to keep Bank of England expectations hawkish The Bank of England has made it clear that the decision on June rate hike will be underpinned by the two sets of wage and inflation data out before the next meeting. The first of these unemployment and wage numbers will be out on Tuesday, with consensus expectations not suggesting any let up in concerns yet. Expectations are for the unemployment rate in the three months to March to hold steady at 3.8%, employment change to remain at 160k from 169k and headline earnings growth to also remain steady at 5.8% from 5.9%, whilst the ex-bonus metric is seen firming up to 6.8% from 6.6%. Firmer data could bring the expectation for a June rate hike from Bank of England higher from a 69% probability for now and bring the focus also on next CPI release on May 24. EURGBP remains on the verge of a breakout on the downside after trading in a range since the start of the year.
Long
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GBP JPY - FUNDAMENTAL ANALYSISJapanese yen strength over time. While the yen underperformed during the global monetary tightening phase, in our view, the currency has scope to outperform later this year. We now believe the BoJ will take advantage of a tactical opportunity to further tweak its policy settings in Q4-2023 to further normalize the government bond market. Such a policy move adds to our constructive medium-term outlook for the yen. Yen outperformance over time should also be supported by the end of central bank tightening and a transition toward easing, as well as a U.S. recession in the second half of 2023.
Short
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2
EUR GBP - FUNDAMENTAL ANALYSISPound Sterling briefly dipped after the GDP data on Friday, but still found support on dips with GBP/USD around 1.2530 and GBP/EUR at 1.1475. The Pound to Dollar (GBP/USD) exchange rate strengthened to 1.2640 in an immediate response to the Bank of England policy decision on Thursday. There was, however, a notable reversal later in the session as risk appetite deteriorated and the dollar regained territory. In this environment, GBP/USD posted sharp losses to lows at 1.2500. Risk conditions will remain an important element. Carl Hammer, chief strategist at SEB commented; "We are entering a more defensive state generally." Adam Cole, chief currency strategist at RBC Capital Markets, expects choppy trading rather than sustained dollar depreciation. He added; "We're not convinced that this is a sustainable trend yet. We'll have periods when the dollar does well and the dollar does badly." Mixed GDP data, UK Lags in Global Terms The latest GDP data recorded a 0.3% decline for March compared with expectations of no change and following no change in February. The first quarter, however, recorded 0.1% growth and in line with expectations which means that the UK has again avoided a technical recession. Services declined 0.5% for March after a 0.1% retreat in February with output in consumer-facing services dipping 0.8% on the month. Production output increased 0.7%for the month with 0.2% growth in construction output. According to Darren Morgan from the ONS; “The fall in March was driven by widespread decreases across the services sector. Despite the launch of new number plates, cars sales were low by historic standards – continuing the trend seen since the start of the pandemic – with warehousing, distribution and retail also having a poor month.” He added; “These falls were partially offset by a strong month for manufacturing as well as growth in gas production and distribution and also in construction.” The ONS estimated that GDP was 0.5% below the pre-pandemic peak and the worst performance within the G10 area. Pantheon Macroeconomics economist Samuel Tombs noted that the UK is “still at the bottom of the G7 league table”. Nevertheless, he added; “at least the magnitude of the underperformance is not increasing relative to other countries in Europe, which have faced a similarly enormous energy price shock.” RSM UK economist Thomas Pugh, commented; “The 0.1% q/q rise in GDP in Q1 means the UK has probably avoided a recession altogether this year.” Nevertheless, he added; “The big picture is that the economy is still 0.5% below its pre-pandemic level and is unlikely to regain that level until the end of the year at the earliest.” According to Victoria Scholar, head of investment at interactive investor; “Stubbornly high inflation, negative real wage growth and general cost of living pressures are weighing on the consumer, and in turn the services industry which is typically a key growth engine for the UK economy.” Tom Stevenson, personal investing director at Fidelity International also pointed to underlying weakness; "With the key services side of the economy continuing to slow in the face of higher borrowing costs and rising prices, it still feels like we’re walking through treacle." He added; "With inflation still in double digits, it feels depressingly like a re-run of 1970s stagflation." KPMG economist Yael Selfin also expressed caution; "While recession is probably no longer on the cards, vulnerabilities resulting from higher borrowing costs and tighter credit are likely to dampen business and household activity this year." Ben Jones, CBI lead economist Ben Jones was slightly more positive; “The UK economy is proving more resilient than widely expected and it looks increasingly likely that the UK will avoid a recession this year. Underlying momentum appears to be firming, with our surveys showing growth expectations for the quarter ahead creeping back into positive territory for the first time in a year. ING summarised the situation; “Strip out all of the volatility though, and the economy seems to be reasonably stagnant.” BoE Debate will Continue The Bank of England increased interest rates by 25 basis points to 4.50% at the latest policy meeting which was in line with consensus forecasts. The 7-2 vote for the move was also expected as Tenreyro and Dhingra again voted against any rate hike. The bank now expects positive GDP growth in 2023 and 2024 with no quarters of negative growth. Overall, growth forecasts were revised higher by the largest extent since the bank gained independence in 1997. The bank also raised inflation forecasts with an important impact from the strong increase in food prices. The CPI inflation rate is now forecast at close to 5.0% at the end of 2023 from 4.0% previously. According to ING; While we don’t exclude one final June hike, our base case is that we have reached the peak of the BoE tightening cycle as inflation will start to rapidly decelerate this year.” ING added; “For now, however, there aren’t many convincing reasons to call for GBP underperformance against its main peers in the near term.” Commerzbank considers that expectations are liable to fluctuate; “In the end future data will be decisive for the BoE’s next rate decision though, in addition to the April inflation data the May data will also be published.” It added; “If a swift fall were to become obvious here, as the BoE expects, it is likely to refrain from further rate hikes and that would put pressure on Sterling. However, the risk that the BoE will do more has certainly increased since yesterday.” According to Credit Agricole; “The comments suggested that the BoE outlook whilst not as dire as in February has not improved significantly from the stagflationary scenario that the MPC has been predicting since May 2022.” UoB expects further GBP/USD losses; “The burst in downward momentum indicates that the downside risk is building quickly. From here, we expect GBP to drop to 1.2445; if it can break below this major support level, it could trigger a rapid decline to 1.2390.”
Long
by thunderpips
1
GBP USD - FUNDAMENTAL ANALYSISPound Sterling briefly dipped after the GDP data on Friday, but still found support on dips with GBP/USD around 1.2530 and GBP/EUR at 1.1475. The Pound to Dollar (GBP/USD) exchange rate strengthened to 1.2640 in an immediate response to the Bank of England policy decision on Thursday. There was, however, a notable reversal later in the session as risk appetite deteriorated and the dollar regained territory. In this environment, GBP/USD posted sharp losses to lows at 1.2500. Risk conditions will remain an important element. Carl Hammer, chief strategist at SEB commented; "We are entering a more defensive state generally." Adam Cole, chief currency strategist at RBC Capital Markets, expects choppy trading rather than sustained dollar depreciation. He added; "We're not convinced that this is a sustainable trend yet. We'll have periods when the dollar does well and the dollar does badly." Mixed GDP data, UK Lags in Global Terms The latest GDP data recorded a 0.3% decline for March compared with expectations of no change and following no change in February. The first quarter, however, recorded 0.1% growth and in line with expectations which means that the UK has again avoided a technical recession. Services declined 0.5% for March after a 0.1% retreat in February with output in consumer-facing services dipping 0.8% on the month. Production output increased 0.7%for the month with 0.2% growth in construction output. According to Darren Morgan from the ONS; “The fall in March was driven by widespread decreases across the services sector. Despite the launch of new number plates, cars sales were low by historic standards – continuing the trend seen since the start of the pandemic – with warehousing, distribution and retail also having a poor month.” He added; “These falls were partially offset by a strong month for manufacturing as well as growth in gas production and distribution and also in construction.” The ONS estimated that GDP was 0.5% below the pre-pandemic peak and the worst performance within the G10 area. Pantheon Macroeconomics economist Samuel Tombs noted that the UK is “still at the bottom of the G7 league table”. Nevertheless, he added; “at least the magnitude of the underperformance is not increasing relative to other countries in Europe, which have faced a similarly enormous energy price shock.” RSM UK economist Thomas Pugh, commented; “The 0.1% q/q rise in GDP in Q1 means the UK has probably avoided a recession altogether this year.” Nevertheless, he added; “The big picture is that the economy is still 0.5% below its pre-pandemic level and is unlikely to regain that level until the end of the year at the earliest.” According to Victoria Scholar, head of investment at interactive investor; “Stubbornly high inflation, negative real wage growth and general cost of living pressures are weighing on the consumer, and in turn the services industry which is typically a key growth engine for the UK economy.” Tom Stevenson, personal investing director at Fidelity International also pointed to underlying weakness; "With the key services side of the economy continuing to slow in the face of higher borrowing costs and rising prices, it still feels like we’re walking through treacle." He added; "With inflation still in double digits, it feels depressingly like a re-run of 1970s stagflation." KPMG economist Yael Selfin also expressed caution; "While recession is probably no longer on the cards, vulnerabilities resulting from higher borrowing costs and tighter credit are likely to dampen business and household activity this year." Ben Jones, CBI lead economist Ben Jones was slightly more positive; “The UK economy is proving more resilient than widely expected and it looks increasingly likely that the UK will avoid a recession this year. Underlying momentum appears to be firming, with our surveys showing growth expectations for the quarter ahead creeping back into positive territory for the first time in a year. ING summarised the situation; “Strip out all of the volatility though, and the economy seems to be reasonably stagnant.” BoE Debate will Continue The Bank of England increased interest rates by 25 basis points to 4.50% at the latest policy meeting which was in line with consensus forecasts. The 7-2 vote for the move was also expected as Tenreyro and Dhingra again voted against any rate hike. The bank now expects positive GDP growth in 2023 and 2024 with no quarters of negative growth. Overall, growth forecasts were revised higher by the largest extent since the bank gained independence in 1997. The bank also raised inflation forecasts with an important impact from the strong increase in food prices. The CPI inflation rate is now forecast at close to 5.0% at the end of 2023 from 4.0% previously. According to ING; While we don’t exclude one final June hike, our base case is that we have reached the peak of the BoE tightening cycle as inflation will start to rapidly decelerate this year.” ING added; “For now, however, there aren’t many convincing reasons to call for GBP underperformance against its main peers in the near term.” Commerzbank considers that expectations are liable to fluctuate; “In the end future data will be decisive for the BoE’s next rate decision though, in addition to the April inflation data the May data will also be published.” It added; “If a swift fall were to become obvious here, as the BoE expects, it is likely to refrain from further rate hikes and that would put pressure on Sterling. However, the risk that the BoE will do more has certainly increased since yesterday.” According to Credit Agricole; “The comments suggested that the BoE outlook whilst not as dire as in February has not improved significantly from the stagflationary scenario that the MPC has been predicting since May 2022.” UoB expects further GBP/USD losses; “The burst in downward momentum indicates that the downside risk is building quickly. From here, we expect GBP to drop to 1.2445; if it can break below this major support level, it could trigger a rapid decline to 1.2390.”
Long
by thunderpips
GBP JPY - FUNDAMENTAL ANALYSISMonetary Policy: A Hawkish Stance? The BoE's impending monetary policy decision is a critical factor underpinning Sterling's performance. The analysts' consensus is that the BoE will adopt a hawkish stance, with a 25 basis point hike in the bank rate. This move would bring the bank rate to 4.50%, in line with market expectations. "We expect the BoE to hike the Bank Rate by 25bp bringing it to 4.50%, which is fully priced by markets," says Kirstine Kundby-Nielsen, Analyst, FX Strategy at Danskebank. She adds, "In our base case of a 25bp hike, we expect the reaction in EUR/GBP to be rather muted on the release but move slightly higher during the press conference." Similarly, Valentin Marinov, Head of G10 FX Strategy at Credit Agricole, also foresees a rate hike. However, he points out that the Monetary Policy Committee (MPC) may remain divided over the need for further aggressive hikes. "We expect that the MPC will deliver a 25bp rate hike today to lift the bank rate to 4.50% but think it will remain divided on the need for further aggressive hikes," says Marinov. Rate Hike Cycle: Nearing its Peak? Another hotly debated topic among analysts is the trajectory of the BoE's rate hike cycle. While some believe that the current cycle is nearing its peak, others argue for its continuation, contingent on the data. ING Economics' FX Strategist, Francesco Pesole, suggests that the BoE might be close to hitting the peak in its rate hike cycle. He cites the primary drivers of inflation, namely food prices and core goods inflation, as temporary phenomena and expects a rapid deceleration in CPI later this year. "Today’s 25bp hike may well be the last one in this cycle," says Pesole. "The drivers of higher-than-projected inflation have primarily been food prices and some surprising stickiness in core goods inflation: neither of those trends look likely to be long-lasting," he adds. On the other hand, Danskebank's Kundby-Nielsen anticipates that the BoE will communicate a 'pause' in its hiking cycle to fully assess the impact of previous rate increases. However, she highlights that this decision will be heavily data-dependent. "In its statement we expect the BoE to prime markets for a pause in the hiking cycle as the central bank wants to fully evaluate the effect from previous Bank Rate increases before deciding on next steps," says Kundby-Nielsen. "However, as always, all future decisions will be data-dependent," she adds. Outlook for the Pound Sterling: Where Next? The impending BoE decision is also expected to have significant ramifications for the sterling. While the overall outlook appears cautiously optimistic, the currency's fate is contingent on multiple factors, including the BoE's future monetary policy stance and the pace of economic recovery. MUFG's Senior Currency Analyst, Lee Hardman, observes the sterling trading close to its year-to-date highs ahead of the BoE meeting. The strengthening of the sterling, particularly against the euro, reflects the fading investor pessimism about the UK's economic outlook. Hardman also notes the resilience of the UK economy and the persistent inflation and wage growth, which puts pressure on the BoE to maintain its rate hike cycle. "The pound is continuing to trade close to year-to-date highs ahead of today’s BoE policy meeting," says Hardman. "The resilience of the UK economy at the start of this year alongside still uncomfortably strong inflation and wage growth keeps pressure on the BoE to keep raising rates," he adds. Francesco Pesole of ING Economics also discusses the sterling's recent strength, attributing it in part to aggressive market expectations of BoE tightening. However, he believes that these hawkish expectations may be excessive and could be scaled back. "We acknowledge that part of GBP’s recent strength has been due to the market’s aggressive expectations about BoE tightening, and therefore recognise there are downside risks as those (excessive, in our view) hawkish expectations are scaled back," says Pesole. BoE's Forward Guidance and Sterling's Reaction Much of the sterling's reaction post-BoE decision would depend on the central bank's forward guidance. Tullia Bucco, Economist at UniCredit Bank, anticipates that the BoE will likely maintain a data-dependent approach without offering explicit rate guidance, leaving the sterling's performance hanging in the balance. "A 25bp rate hike to 4.50% is expected, and sterling’s reaction will therefore likely mostly depend on the message that BoE Governor Bailey conveys in his press conference," says Bucco. "The risk is that no rate guidance will be delivered today, with the BoE stressing that further rate decisions remain data dependent, which might not offer sterling much support either," she adds. Nikesh Sawjani, Economist at Lloyds Bank, highlights that the 25bps rise would make it the twelfth consecutive hike in the current cycle which began in December 2021. The cumulative tightening since then would total 440bp. Sawjani draws attention to the fact that current CPI inflation is much stronger than the BoE had anticipated, with March's headline CPI at a substantial 10.1%, notably above the BoE staff forecast of 9.2%. Sawjani also anticipates an upward revision of GDP forecasts, backed by possible GDP growth in Q1 and survey evidence of improved economic confidence and activity at the start of Q2. Additionally, he expects that fiscal measures from the March Budget and lower-than-assumed energy prices will likely support real incomes, further bolstering GDP. "New BoE economic forecasts will provide an update on the medium-term growth and inflation outlook," says Sawjani. "Overall, it seems likely that GDP forecasts will be revised higher. All else being equal, that would lead to a higher medium-term inflation profile although not sufficiently to prevent an undershoot of the 2% target in 2024 and 2025," he adds.
Short
by thunderpips
EUR GBP - FUNDAMENTAL ANALYSISMonetary Policy: A Hawkish Stance? The BoE's impending monetary policy decision is a critical factor underpinning Sterling's performance. The analysts' consensus is that the BoE will adopt a hawkish stance, with a 25 basis point hike in the bank rate. This move would bring the bank rate to 4.50%, in line with market expectations. "We expect the BoE to hike the Bank Rate by 25bp bringing it to 4.50%, which is fully priced by markets," says Kirstine Kundby-Nielsen, Analyst, FX Strategy at Danskebank. She adds, "In our base case of a 25bp hike, we expect the reaction in EUR/GBP to be rather muted on the release but move slightly higher during the press conference." Similarly, Valentin Marinov, Head of G10 FX Strategy at Credit Agricole, also foresees a rate hike. However, he points out that the Monetary Policy Committee (MPC) may remain divided over the need for further aggressive hikes. "We expect that the MPC will deliver a 25bp rate hike today to lift the bank rate to 4.50% but think it will remain divided on the need for further aggressive hikes," says Marinov. Rate Hike Cycle: Nearing its Peak? Another hotly debated topic among analysts is the trajectory of the BoE's rate hike cycle. While some believe that the current cycle is nearing its peak, others argue for its continuation, contingent on the data. ING Economics' FX Strategist, Francesco Pesole, suggests that the BoE might be close to hitting the peak in its rate hike cycle. He cites the primary drivers of inflation, namely food prices and core goods inflation, as temporary phenomena and expects a rapid deceleration in CPI later this year. "Today’s 25bp hike may well be the last one in this cycle," says Pesole. "The drivers of higher-than-projected inflation have primarily been food prices and some surprising stickiness in core goods inflation: neither of those trends look likely to be long-lasting," he adds. On the other hand, Danskebank's Kundby-Nielsen anticipates that the BoE will communicate a 'pause' in its hiking cycle to fully assess the impact of previous rate increases. However, she highlights that this decision will be heavily data-dependent. "In its statement we expect the BoE to prime markets for a pause in the hiking cycle as the central bank wants to fully evaluate the effect from previous Bank Rate increases before deciding on next steps," says Kundby-Nielsen. "However, as always, all future decisions will be data-dependent," she adds. Outlook for the Pound Sterling: Where Next? The impending BoE decision is also expected to have significant ramifications for the sterling. While the overall outlook appears cautiously optimistic, the currency's fate is contingent on multiple factors, including the BoE's future monetary policy stance and the pace of economic recovery. MUFG's Senior Currency Analyst, Lee Hardman, observes the sterling trading close to its year-to-date highs ahead of the BoE meeting. The strengthening of the sterling, particularly against the euro, reflects the fading investor pessimism about the UK's economic outlook. Hardman also notes the resilience of the UK economy and the persistent inflation and wage growth, which puts pressure on the BoE to maintain its rate hike cycle. "The pound is continuing to trade close to year-to-date highs ahead of today’s BoE policy meeting," says Hardman. "The resilience of the UK economy at the start of this year alongside still uncomfortably strong inflation and wage growth keeps pressure on the BoE to keep raising rates," he adds. Francesco Pesole of ING Economics also discusses the sterling's recent strength, attributing it in part to aggressive market expectations of BoE tightening. However, he believes that these hawkish expectations may be excessive and could be scaled back. "We acknowledge that part of GBP’s recent strength has been due to the market’s aggressive expectations about BoE tightening, and therefore recognise there are downside risks as those (excessive, in our view) hawkish expectations are scaled back," says Pesole. BoE's Forward Guidance and Sterling's Reaction Much of the sterling's reaction post-BoE decision would depend on the central bank's forward guidance. Tullia Bucco, Economist at UniCredit Bank, anticipates that the BoE will likely maintain a data-dependent approach without offering explicit rate guidance, leaving the sterling's performance hanging in the balance. "A 25bp rate hike to 4.50% is expected, and sterling’s reaction will therefore likely mostly depend on the message that BoE Governor Bailey conveys in his press conference," says Bucco. "The risk is that no rate guidance will be delivered today, with the BoE stressing that further rate decisions remain data dependent, which might not offer sterling much support either," she adds. Nikesh Sawjani, Economist at Lloyds Bank, highlights that the 25bps rise would make it the twelfth consecutive hike in the current cycle which began in December 2021. The cumulative tightening since then would total 440bp. Sawjani draws attention to the fact that current CPI inflation is much stronger than the BoE had anticipated, with March's headline CPI at a substantial 10.1%, notably above the BoE staff forecast of 9.2%. Sawjani also anticipates an upward revision of GDP forecasts, backed by possible GDP growth in Q1 and survey evidence of improved economic confidence and activity at the start of Q2. Additionally, he expects that fiscal measures from the March Budget and lower-than-assumed energy prices will likely support real incomes, further bolstering GDP. "New BoE economic forecasts will provide an update on the medium-term growth and inflation outlook," says Sawjani. "Overall, it seems likely that GDP forecasts will be revised higher. All else being equal, that would lead to a higher medium-term inflation profile although not sufficiently to prevent an undershoot of the 2% target in 2024 and 2025," he adds.
Long
by thunderpips
GBP USD - FUNDAMENTAL ANALYSISAn extended period of U.S. dollar depreciation is approaching. The greenback could be relatively stable in the near term, as some additional Fed tightening combined with the potential for mildly unsettled markets could provide temporary support for the greenback. However, we expect the U.S. currency to come under pressure as aggressive Fed easing starts in Q4-2023. We forecast the trade-weighted dollar to soften 3% over the balance of 2023, and by a further 5% in 2024.
Long
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GBP USD - FUNDAMENTAL DRIVERSThe Pound and Euro could reach fresh multi-month highs against the U.S. Dollar this spring, although a lull in price action over the northern hemisphere's summer months would then be expected. This is according to the analysis of W. Brad Bechtel, Global Head of FX at Jefferies LLC, which also warns of the potential for a more notable turn lower in the Dollar by year-end. Bechtel has been watching the Dollar index - a measure of overall USD performance against a basket of major currencies - and finds the rise witnessed over recent days can continue, even if it is somewhat unconvincing. "I am still of the view that we are likely to see some weakness in the USD in the medium term, but in the very short term DXY might get pulled just a bit higher first," says W. Brad Bechtel, Global Head of FX at Jefferies LLC. Bechtel is watching U.S. interest rate markets as an explainer of the Dollar's performance as inflation narratives become "a thing again" . "DXY made a double bottom around 100.80 for now but has not really participated in the rally as U.S. rates grind higher," says Bechtel. U.S. two-year bond yields have been rising since the week of March 20, a development that would typically be expected to offer the U.S. Dollar support. But, "in percentage retracement terms the USD is nowhere close to the 50% seen in the 2yr which tells me that there is some structural weakness in the USD out there still". "If this move in U.S. yields fizzles and starts to reverse lower again, then the USD will take out 100.80 pretty quick and EUR/USD will rise through 1.1100," predicts Bechtel. The Dollar is expected to be the prime driver of where the Pound to Dollar exchange rate and other pairs trade over the coming weeks. "In the end, EUR/USD will trade to 1.1250, GBP/USD 1.2700, AUD/USD through 0.7000, maybe up to 0.7200 eventually," says the Jefferies analyst. The Dollar index is meanwhile expected to trade through 100.00 floor, but Jefferies' FX strategy team is not looking for "a huge break lower" . "A move through 100.00 and then some range-bound activity as we push through the Summer," says Bechtel. This suggests another leg higher in GBP/USD, EUR/USD, AUD/USD et al. is possible during spring, ahead of rangebound trade during the summer months (through to end-August). "By end of Summer, we'll have a better view on where things stand with the US economy. Will the US economy roll over hard or will the Fed pull the rabbit out of its hat and have a soft landing," says Bechtel. If the Dollar slides sharply into year-end and into next year "then we could enter a bigger down cycle in the USD, but I am reticent to make that call just yet," says Bechtel.
by thunderpips
2
GBPUSD 1.24144 +0.02% LONG IDEA 🐮📈HELLO EVERYONE HOPE EVERYONE IS DOING GOOD. * Looking at GBPUSD heading into the London session * Asian session took out last friday's lows taking this sell side liquidity * we have a market structure shift as price is delivered this morning. - momentum is significantly bullish. -Looking to see how London open for mor confirmation. * looking at the extreme FVG for entries with the long even though the OB is at 50% . - TARGET would be the the BSL & OB. lets see how it goes. IF THIS IDEA ASSISTS IN ANY OR IF YOU LIKE THIS ONE SMASH THAT LIKE BUTTON & LEAVE A COMMENT. ALWAYS APPRECIATED ____________________________________________________________________________________________________________________ * Kindly follow your entry rules on entries & stops. |* Some of The idea's may be predictive yet are not financial advice or signals. | *Trading plans can change at anytime reactive to the market. | * Many stars must align with the plan before executing the trade, kindly follow your rules & RISK MANAGEMENT. _____________________________________________________________________________________________________________________ | * ENTRY & SL -KINDLY FOLLOW YOUR RULES | * RISK-MANAGEMENT | *PERIOD - I TAKE MY TRADES ON A INTRA DAY SESSIONS BASIS THIS IS NOT FINACIAL ADVICE TO EXCECUTE ❤ LOVELY TRADING WEEK TO YOU!
Long
by PULEMokhothu