EM Market Report

Come to the end of the road?

Thanim Islam
Thanim Islam 11 May 2023

- US inflation continues to ease

- Bank of England with one final hike

- GBP to take cues from Bailey’s statement


Inflation in the US dropped below 5% for the first time in two years, with the April reading coming in at 4.9% and core inflation easing to 5.5% from 5.6%. The now data dependent Federal Reserve seems to have room to pause in hiking rates in June, with markets still looking for the Fed to cut interest rates later this year. The USD index continues to trade near 2023 lows, thus causing GBPUSD and EURUSD to trade just shy of their recent highs.


Market rates

* Daily move - against G10 rates at 5:00pm, 10.05.23

** Indicative rates - interbank rates at 5:00pm, 10.05.23

Table (4)-1

Data points

Table (5)-1


  • EUR – ECB Schnabel, De Cos, Guindos

  • GBP – BoE Bailey

Our thoughts

All eyes on the Bank of England today. In a similar vein to the Fed and ECB meetings last week we are likely to see interest rates rise to 4.5%, but focus will of course be on the accompanying guidance on future policy. With market pricing suggesting peak interest rates of 4.85% for this year, we will need to see additional hawkish guidance from the Bank for GBP to continue its recent moves higher. Otherwise, should we see a dovish hike and markets ease rate expectations for this year, then we will likely see GBP come under selling pressure. Later in the afternoon we have producer inflation numbers out from the US, as well as the weekly initial jobless claims. Yesterday's slightly lower than expected consumer inflation numbers barely dented USD, and there could well be minimal moves on USD pairs today from these data points today.

Chart of the day

So, the key takeaway from today's Bank of England meeting will be whether Governor Bailey and the MPC indicate that the Bank has come to the end of the road of their rate hiking cycle that began back in December 2021. Inflation still remains in double digits in the UK, but prices have eased off their peak. Markets continue to price in additional hikes beyond today's meeting, so GBP performance will be dependent on whether the BoE meet this expectation or not.

11052023 cotdSource: Bloomberg Finance L.P.

Have a great day.