You got to know when to hold 'em, know when to fold 'em

- USD momentum continues

- Optimism continues over debt ceiling

- UK consumer confidence at pre war highs

Recap

The USD strength continued yesterday after Fed Logan suggested another hike is still possible given inflationary pressures and recent data. As we know from this week, data has suggested the resilience of the US economy and yesterday's initial jobless claims came in better than expected, falling to 242,000. As a result money markets continued to pare Fed rate cut expectations, treasury yields continued to rise, GBPUSD fell to the lowest since 26^th April, and EURUSD fell to the lowest since 27^th March.

Debt ceiling talks continue to have an optimistic stance after Kevin McCarthy and Chuck Schumer suggested there could be an agreement in principle as early this weekend.

Data early this morning showed that consumer confidence is now at the highest since just before Russia's invasion of Ukraine.

Today

Market rates

* Daily move - against G10 rates at 5:00pm, 18.05.23

** Indicative rates - interbank rates at 5:00pm, 18.05.23

Data points

Speeches

• GBP - BoE Haskel

• EUR – ECB Lagarde, De Cos

• USD – Fed Williams, Bowman, Fed chair Powell, and former chair Bernanke

Our thoughts

A host of speakers from the BoE, Fed and ECB will be in focus today with Fed Powell and former Fed Chair Ben Bernanke set to speak in the evening. Recent Fed talk continues to dismiss the expectation of Fed rate cuts this year, and further reiteration of this today will likely add to USD strength into the weekend.

Chart of the day

With the markets repricing rate hike/cut expectations from the BoE and the Fed, talk on the desk this week has been about whether this run on GBPUSD is coming to an end? Perhaps a better way of looking at current pricing, particularly for clients who need to sell GBP and buy USD, is the perspective of risk vs. reward within the current trading range. GBPUSD is currently 2.2% off the recent highs and almost 5% off the bottom of the range. So for buyers of USD, the question that is worth asking yourself is do I want to risk a 5% move against me to gain an additional 2.20% of favourable rate moves? For clients looking at future USD needs, it is worth looking at how much exposure you haven't covered this year, and using this risk/reward principle to aid your decision.

Source: Bloomberg Finance L.P.

Have a great day.