Bring on the BOE

Mike Paterson
May 11, 2023
2 min read

Thursday 11 May 2023

Yesterday's US CPI data came in slightly softer than expected but nowhere near the level by which markets reacted in its USD supply and pricing in three FOMC rate cuts before end of 2023. Bonkers imho, as per my tweet at the time. We've since seen the correction, and more, as USD demand returns and risk sentiment generally looking more steady again.

Comments in the latest BOJ Summary of Opinions in Asia trading saw an initial push lower in USDJPY on one member saying 2% inflation target is nearing but decent support at 133.80 and other comments suggesting monetary policy to stay easy for a while yet saw a decent bounce that has extended with the USD demand generally. ECB speakers up to the rostrum today.

Main CB focus though of course is the BOE at 12.00 BST with a presser at 12.30 BST. 25bps hike totally factored in and a 7-2 vote and I expect the accompanying statement to be cautious/neutral. I'm not convinced rates go all the way to many expectations of 5%. Like most CBs though they are caught between a rock and a hard place and will be data dependent.

Equities are off yesterday's extended lows this morning while WTI is trading tightly after capping into $73.80 then holding $71.50 yesterday. Gold still holding $2020 in the latest retreat after yesterday's post-CPI rally above $2040 where those natural sellers took advantage again. Ukraine/Russia war continues to be the main geo-political elephant in the room with ongoing US/China/Taiwan tensions in the mix too The world remains a fragile place for sure.

GBPUSD: A hold of 1.2560 in this morning's extended retreat after yesterday's cap at 1.2680. I remain a rally seller as my preferred side but as always it's a question of identifying the risk/reward levels. BOE casting a shadow today where the risk will come essentially from a more hawkish stance than market expects. EURGBP: Capping around 0.8700 again after testing 0.8670-80 again. Expect some two-way business still overall with BOE in focus too. GBPJPY: Capping around 170.50 yesterday and falling into 169.00 amid the generally fragile risk but finding support as sentiment ticks up a little this morning

EURUSD: Failing around the key/psychological 1.1000 level in yesterday's rally post-CPI and re-sells duly placed.In retreat again this morning amid the USD demand and breaking down through 1.0930 support only to hold 1.0920. Some pips banked again in the retreat and I remain a rally seller as my preferred side overall. USDJPY: A decent cap around 135.50 yesterday and retreat to look at 133.80 support. Now testing 134.80 again amid the better risk and USD demand. I still prefer to sell rallies/be long JPY but caution still required in these ever-fickle markets.

More detailed analysis across a variety of pairs from mike@mspfx.co.uk

Interbank rates: 08.45 BST

GBPUSD 1.2580

EURUSD 1.0923

EURGBP 0.8689

GBPEUR 1.1508

USDJPY 134.62

GBPJPY 169.17

GBPCAD 1.6857

GBPCHF 1.1258

GBPZAR 23.7988

GBPHKD 9.7998