Early USD gains faded going into the close of European trading, as markets pared positioning going into tonight's Fed meeting, and more importantly the Fed’s dot plot.
CAD sold off as February’s inflation reading came in lower than expected, intensifying the possibility of a rate cut in June. GBPCAD remains near the highs seen in 2022.
Chancellor Jeremy Hunt hinted that we could have a general election in October.
*Daily move - against G10 rates at 7:30am, 20.03.24
** Indicative rates - interbank rates at 7:30am, 20.03.24
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Headline UK inflation and core inflation came in lower than expected, initially causing a sell off in GBP, due to a drop in food inflation. However, services inflation didn’t slow as much as expected and GBP recovered these losses. Thus, the net effect on GBP from the numbers is neutral. Next up is the BoE meeting tomorrow, and particularly the outcome of the vote from MPC members.
Quiet rest of day as we wait for the Fed meeting in the evening. No rate changes are expected, but given the recent uptick in job and inflation numbers, there is a possibility that the Fed's accompanying statement is more hawkish than in December, which in turn could see further USD gains.
The Fed’s dot plot in December indicated that the Fed expected 75 bps worth of rate cuts across this year, which the market in turn has finally caught up to and priced in the same. Recent inflation and job numbers is now bringing up the question and possibility that perhaps the Fed may well have to stick to their higher rates for longer mantra, and reduce the amount of rate cuts expected this year.
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