You know you make me breakout

- GBP breaks to 5-month high vs EUR

- BoE meeting tomorrow remains risk factor

- US inflation in focus today

Recap

GBP continued its trend higher yesterday, with GBPEUR now trading at the highest level for 2023 ahead of tomorrow's Bank of England meeting. The EUR continued to weaken following last week's ECB meeting. USD continues to trade flat ahead of CPI data today.

Today

Market rates

* Daily move - against G10 rates at 5:00pm, 09.05.23

** Indicative rates - interbank rates at 5:00pm, 09.05.23

Data points

Speeches

• EUR - ECB Muller, Centeno

Our thoughts

As stated above GBPEUR is currently at the highest rate for five months ahead of tomorrow's BoE meeting, and following last week's ECB meeting. Interest rate expectations continue to be the driving factor with markets pricing in 0.65% worth of hikes by the BoE by the end of the year, versus markets reducing ECB rate expectations to 0.40% over the same period. Worth noting though that tomorrow’s BoE meeting will be a risk factor for additional gains for GBP. We expect a 0.25% hike, but the accompanying statement and forecast on inflation will be key on how the markets price in interest rate expectations, and should that 0.65% be reduced then that would likely be negative for GBP.

Over to today, US inflation numbers are the focus, and given the Fed's message of being data dependent on future rate hikes, any sign that inflation is climbing again would likely add to some gains on USD.

Chart of the day

GBP broke out to the upside of its 2023 range yesterday ahead of the Bank of England meeting tomorrow. Rate expectation divergence continues to be one of the main drivers behind this, and any dovish undertones by the BoE will likely lead to markets easing BoE hike expectations, and thus cause some weakness in GBP.

Source: Bloomberg Finance L.P.

Have a great day.