Gold on the ceiling

- BoE hikes by 0.25%

- UK economy growth slows

- Debt ceiling talks cause safe haven demand

Recap

GBP largely declined yesterday following the BoE meeting. There was a unanimous 7-2 vote to hike by 0.25%, as well as upwards revision on GDP and willingness to hike rates further should there be inflationary pressures. Some could call this hawkish, however, similar to the Fed and ECB last week, there was no conviction in dictating future rate policy and consequently GBP largely declined with markets shaving 5bps off peak interest rates for this year. The weakness yesterday suggests markets booking profits on the recent gains for the currency and this could continue in the short term, but doesn’t necessarily mean there will be negative sentiment on GBP over the medium term. Over in the US, data continued to add to odds of rate cut bets by the Fed beginning as early as July, after producer inflation numbers came in lower and the weekly jobless claims figures rose to the highest since October 2021. However, the USD gained yesterday across the board on safe-haven demand.

Today

Market rates

* Daily move - against G10 rates at 5:00pm, 11.05.23

** Indicative rates - interbank rates at 5:00pm, 11.05.23

Data points

Speeches

• USD - Fed Daly

Our thoughts

UK GDP numbers this morning showed economic growth slowed as expected to 0.1% in the first quarter, down from 0.6% in the fourth quarter. GBP is up slightly this morning. Data points are thin on the ground today with markets likely to be cautious going into the weekend, with debt ceiling talks continuing. Any safe-haven demand should support USD. Have a good weekend all.

Chart of the day

Jobless claims in the US rose to highest since October 2021 signalling some slackness in the job markets. As a result, the markets have begun to price in the first Fed rate cut as early as July this year. However, USD weakness was at a minimum from this with the markets now being concerned with the ongoing debt ceiling talks and the fear of a default by the US. Cautious markets will likely lead to safe haven buying.

Source: Bloomberg Finance L.P.

Have a great day.