GBP

Yesterday, the GBP had a quiet session with no significant data releases. Bank of England Governor Andrew Bailey’s testimony to the Treasury Select Committee did not generate much market reaction, as his comments did not contain new information. GfK Consumer Confidence data, which showed a slight improvement from the previous month but has proven to be a poor indicator of the UK economy since the pandemic, also had little impact. The upcoming speech by Bank of England policymaker Jonathan Haskel is unlikely to garner much attention from the markets.

GBP Forecast: UK CPI and BoE Rate Decision Complicated by Banking Rout and Inflation Data

Traders are more likely to focus on next week’s release of UK CPI, which is expected to show a drop and could lead to a shift in expectations for BoE rate hikes, potentially weakening the pound.

eurozone markets

In the eurozone, European markets were relatively light due to the observance of Ascension day. However, there have been significant developments in recent days, including an increase in ECB hiking expectations based on speeches by policymakers and their hawkish tone. Vice President Luis de Guindos expressed concern about accelerating inflation in services, which aligns with recent remarks by other ECB speakers focusing on labor markets and wage pressures as drivers of inflation. The impact on FX markets has been modest so far, as the rise in US real yields has offset similar moves in eurozone bonds. The euro remains on the sidelines for now, with events elsewhere taking center stage.

US equities and foreign exchange market

In the US, equities had a positive session as Congressional leaders provided optimistic updates on the debt ceiling negotiations, and earnings reports from companies like Walmart alleviated recession concerns. However, the positive mood in equities did not translate to the foreign exchange market. The rally in US real yields, driven by hawkish commentary from Dallas Fed President Lorie Logan, inhibited currency strength. Logan’s comments and improving sentiment regarding the debt ceiling increased expectations of another rate hike from the Federal Reserve, leading to a shift in money market pricing. Traders are now pricing in a 30% probability of a rate hike at the next Fed meeting, contrary to previous expectations. This shift also reduced expectations of rate cuts later in the year. The FX market currently exhibits a mild risk-on tone, with G10 currencies rebounding against the US dollar, aided by a marginal decline in US Treasury yields and an improvement in USDCNY.

Market participants keep an eye on Fed commentary

Today, market participants will keep an eye on Fed commentary, with Chair Powell scheduled to speak alongside former Fed Chair Ben Bernanke, and Fed Presidents Williams and Bowman also delivering speeches. Positioning ahead of President Biden’s scheduled speech on Sunday, where an update on negotiations is expected, may also influence price action.