Home Daily Commentaries Softer UK inflation data reduces the likelihood of a June BoE rate cut

Softer UK inflation data reduces the likelihood of a June BoE rate cut

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Thursday 23 May, 2024

Daily Currency Update

In European markets, policymakers are seemingly aligned in their view that inflation is falling and will continue to remain soft. Christine Lagarde, the ECB President, indicated this week that a June rate cut by the ECB is most likely as inflation moves back toward 2%.

In the UK, inflation data released yesterday was not as soft as expected. Consequently, markets have been paring back bets for a June rate cut by the Bank of England. While headline and core inflation fell to 2.3% and 3.9% respectively, service inflation, which is driven by wage growth, remains persistently high. This creates a conundrum regarding the timing of the BoE’s first rate cut this year.

The US Dollar has been trading sideways in a very tight range since last week. Minutes from the Federal Reserve’s policy committee show that they overwhelmingly believe inflation pressures are falling back toward their 2% target rate. Markets are predicting their first rate cut will be in September this year.

Key Movers

Today's Purchasing Managers Index (PMI) rose to 47.4 in Europe, exceeding the expected 46.2. This is a 15-month high for the index and demonstrates an underlying strength in the Eurozone’s economy. As markets digest this economic release, the Euro may benefit against the Dollar and Pound.

Tomorrow, the Office for National Statistics in the UK will release retail sales data for April. This figure represents household spending and is a crucial indicator of inflation so markets will be watching it closely. The figure is expected to come in at -0.4%.

Later today, the US will release estimates of the Purchasing Managers Index (PMI), which serves as a guide for business activity. This figure is expected to come above 50, indicating further strength in the US economy. However, there are risks that, as the economy grows, inflation may not decrease as quickly as the Federal Reserve would like. This concern was highlighted by last week's softer US inflation figures.

Expected Ranges

  • GBP/USD: 1.2695 - 1.2760 ▼
  • GBP/EUR: 1.1710 - 1.1765 ▼
  • GBP/AUD: 1.9175 - 1.9230 ▼
  • EUR/USD: 1.0820 - 1.0885 ▼

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.

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