Laura May’s Post

🌍 FXGuard Market Insight 🌍 | The Bank of England’s latest rate cut and economic outlook hold crucial insights for managing financial risk in today’s volatile market. The Bank of England (BOE) reduced the benchmark interest rate by 0.25% to 4.75%, with Governor Andrew Bailey emphasizing a cautious approach to further easing due to persistent inflation risks. The BOE noted that Chancellor Rachel Reeves’ recent budget could drive inflation up by as much as 0.5%, potentially pushing CPI inflation to 2.8% by Q3 2025. The budget is also expected to boost GDP by 0.75% in its peak year. UK borrowing costs have risen sharply since the budget, evoking memories of the 2022 financial turmoil. Geopolitical developments, including Donald Trump's U.S. election win, have further increased trade-related risks and inflation uncertainty. Inflation forecasts show CPI at 1.7% currently but rising to 2.5% by year-end, with the BOE monitoring wage growth, profit margins, and potential price pressures from a tight labor market. The MPC maintains that a gradual approach to policy easing remains essential, keeping inflation risks under control and moving toward a medium-term return to the 2% inflation target. #FXGuard #MarketInsights #BankOfEngland #Inflation #InterestRates #GlobalEconomy #FXRiskManagement #EconomicOutlook #UKEconomy

[Capital at risk] This morning’s data showed that headline inflation in the UK rose to 2.2% in July, up from 2.0% in June. The reading came in below the market expectations of a 2.3% growth, moving back above the Bank of England’s 2.0% target. “It is the first time CPI has risen since February 2023 after the BoE raised interest rates to 16-year highs to bring down inflation. The Bank of England acknowledged the battle against inflation is not done” comments our Chief Investment Officer, Richard Flax. “Monetary policy will need to stay restrictive for an extended period until the risks of inflation returning sustainably to the 2% target in the medium term have diminished further” concludes Flax. Let’s take a step back, what is inflation and what causes it? Follow up here: https://lnkd.in/e5jjfKG3 #CPI #BoE #investments #savings #monetarypolicy #economy #wealthmanagement #moneyfarm

The only certainty from today's reading of the RBA tea leaves is that optimism is likely to slide about any early fall in interest rates. The RBA's cautious outlook seems to be in synch with the US Reserve and the Bank of England -- there is still a fight to be won against inflation. What's worrying all the Central Bankers is that while an energy price shock has washed out of the market, the residual affects of the trillions of dollars of public sector stimulus is leading to "sticky inflation" that remains just outside the target bands of 2 to 3%. As the RBA Governor Michele Bullock indicated in her press conference today Australia was facing four years of inflation outside the target band, which to most families means accumulated prices rise of 20 to 30% during that period, which has led to sharp falls in incomes and living standards. The message from all key Central Banks is that defeating inflation is a must, not as some are suggesting just a nice thing to have. The good news is that progress is being made, the uncertainty lies in when the war will be won. What does this mean for Australia? Certainly unlikely no rate cuts before July, maybe not until the last qtr this year, with some inflation hawks think nothing to 2025. If that were to occur that would be grim tidings for politicians in the UK, US and Australia all facing elections in the next 12 months with electorates getting more anxious about when the light at the end of the tunnel will appear. #InflationFight

Positive news from the us yesterday that inflation continues to reside and increasing the probability of a fed interest rate cut. Bond yields, a key measure of borrowing costs on financial markets, fell on both sides of the Atlantic with the rate on ten-year UK gilts and ten-year US treasurers dropping towards 3.81 per cent. This may help Rt Hon Rachel Reeves plug any holes create by pay settlements as debt interest payments will come in lower than forecast removing the need for tax increases! #interest #economics #bonds #inflation https://lnkd.in/ez4-h6Bc

🇬🇧 The best strategy in GBP has been to hold back my dovish bias (I've got a bunch of leading indicators suggesting services inflation really won't be a problem in a few months) and note that we'd get a turn in sentiment around the budget for when to go for it. But these markets love to pull forward narratives (the pre-event trade) and Bailey has given a green light for those who thought December should be a live meeting (I think it'll probably be a tight 5-4 vote split if they do). The last 8-1 vote was a bit of a spanner in the works, reminding us the hardest part of this job isn't the data forecasting (as we've got leading indicators for that) but the human reaction function - which is prone to change! Bailey is very much a consensus banker, I doubt he'd make those comments without the confidence others on the MPC probably agree. Given the long USD bias we have into and over NFP I wouldn't fade this move. If there is one chart that says "the UK doesn't have a Services inflation problem" it's this: The largest contributor to Services inflation is Recreation and Personal services (grey line) - currently adding 0.58% to headline CPI. For firms in that sector their price setting behaviour is quite easy to predict - it's wage growth and last quarters CPI (the backward looking nature of price setting in full effect) - Red line. I expect both to keep falling over the next few months and Services inflation to be at much more comfortable levels. It's been a "cruel summer" for GBP bears, but the drop in Hotel prices after Taylor swift played in London means they can shake it off, no more Bad Blood. Bailey's changed his mind on the pace becoming the anti-hero and it's a new Love Story for markets looking to chase GBP to 1.30 and pricing in a 60%-70% chance of a Dec cut (where I think we should settle for now).

#UK Economy: Testing the Bank of England’s Moderately Hawkish Stance Following last week’s post-election and Fed lull, focus shifts to the UK, where upcoming data releases may shape the Bank of England’s policy trajectory. The #BoE’s recent 25 bps rate cut to 4.75%—with an 8-1 vote, slightly more cautious than expected—signals a “gradual approach” to easing, aimed at guiding inflation back to 2% while balancing slower growth. Governor #Bailey highlighted that future cuts would be gradual, noting inflation risks remain, particularly in services. Revised forecasts show inflation sticking higher for longer, with 2024 adjusted down to 2.25% but 2025 increased to 2.75%. Growth projections were lowered, reflecting the BoE’s expectation of a slowing economy alongside persistent inflation. Market Reactions and Forward Guidance GBP/USD saw a slight lift, while Gilt futures dipped post-cut. The BoE’s cautious forward guidance, emphasizing sustained inflation control, has lent a mildly hawkish tone to the decision. Data-Driven Path Ahead for #GBP Key UK data releases are now in the spotlight. Significant misses in GDP, CPI, or labor data could pressure the BoE towards more aggressive easing, influencing GBP/USD volatility. Watch for downside surprises in the data, such as tomorrow's UK GDP print. If we see: - UK GDP Estimate 3M/3M (Sep 2024): -0.1% or lower - UK GDP Estimate MM (Sep 2024): 0.0% or lower - UK Services MM (Sep 2024): 0.0% or lower If these metrics fall short with prior figures unrevised or adjusted downward, expect #GBPUSD sellers to enter the market.

Following last week's budget announcement by the UK Chancellor, British bonds saw a sell-off, but the pound has stabilized as the new week begins. Key events are expected to create a turbulent market week ahead. The U.S. presidential election on Tuesday, November 5, is the main focus, though results may not be clear until Wednesday morning. With Trump leading in polls, markets expect USD strength if he wins. Major volatility is likely across forex and stocks until a decisive result emerges. The Fed’s interest rate decision on Wednesday night and the Bank of England’s rate announcement on Thursday will further impact markets. Investors anticipate a 25-basis-point rate cut from both central banks in November, keeping market movements steady amid potential shocks from the election outcome. #Forex #USElection #Pound #USD #MarketUpdate

GBP   Yesterday, the Bank of England Governor Andrew Bailey said that the BoE does not have to wait for inflation to hit 2% until it cuts rates, which triggered a decent rally at the short end of the UK gilt curve. GBP did not fall more due to the possibility of fiscal stimulus by the Government in 6th of March budget. The UK budget could also introduce plans to incentivise UK pension funds to invest in UK asset markets. The decline of London's ability to attract major listings has been well-documented recently, and some new incentives here, including the additional concept of a British Individual Saving Account, could help GBP's prospects.   EUR   There is a less pessimistic view on the Euro emerging, with the downside volatility by the markets starting to lessen. Today, we see eurozone consumer confidence for February, and if wage growth is not falling as fast as inflation, there may well be an increase in real income across Europe. A slight improvement in confidence will indicate a healthier eurozone economy. So, we expect the EUR to trade slightly above the current ranges.   USD   Movement in the dollar has been very quiet so far this week. This could be down to investors thinking that January's US CPI number was a one-off and that the disinflation story will restart when the February CPI figure is released in March. We must also consider the unusual strength in Chinese equity markets and CNH, which has tended to undermine dollar strength. There is no US data of note today, but we have several Fed speakers. Tonight, we will see the release of the minutes from the 31st of January FOMC meeting. Recall that this was seen as a neutral meeting until Fed Chair Jerome Powell used an opportunity in the press conference to say that a March rate cut was unlikely. We may see investors and corporates using the dollar strength this month to position for lower levels later in the year.  

The top part of the chart shows the difference in two-year government bond yields (spread) between the UK (GB02Y) and the US (US02Y), as well as the GBPUSD currency trend. The lower chart reflects the percentage change trend of this spread. • GB02Y-US02Y Trend: The interest rate difference between the UK and the US has varied over time. This fluctuation in the interest rate spread reflects the relative economic performance and monetary policy differences between the two countries. • GBPUSD Trend: This represents the value of the British Pound against the US Dollar. The exchange rate fluctuates based on a wide range of factors but is generally influenced by fundamental economic health, interest rate differences, and investor risk perception. • Spread Percentage Change Trend: The percentage change in the spread shows how much the risk and return evaluation between the two countries’ bonds has shifted. A negative Z-score value indicates that UK interest rates are relatively lower compared to US rates, which could typically imply weaker economic performance or lower inflation expectations for the UK. Based on these data, if the interest rate difference between the UK and the US narrows, it could usually create upward pressure on GBPUSD as investors might turn to the Pound seeking higher returns. However, overall GBPUSD performance is not solely affected by interest rate differentials but also by many factors such as trade balances, political stability, and global risk appetite. When the Z-score is low and negative, it suggests a relative decrease in the value of UK bonds, which is important to consider along with other factors like economic data, political developments, and the central banks’ policies of both countries to make a forecast. #marketing #usdtry #finance #economy #data #sustanability #marketing #sp500 S&P Global Merrill Lynch Goldman Sachs KPMG EY PwC Deloitte BlackRock Blackstone Bank of America Deutsche Bank UBS Investment Bank

GBP   Yesterday, the Bank of England Governor Andrew Bailey said that the BoE does not have to wait for inflation to hit 2% until it cuts rates, which triggered a decent rally at the short end of the UK gilt curve. GBP did not fall more due to the possibility of fiscal stimulus by the Government in 6th of March budget. The UK budget could also introduce plans to incentivise UK pension funds to invest in UK asset markets. The decline of London's ability to attract major listings has been well-documented recently, and some new incentives here, including the additional concept of a British Individual Saving Account, could help GBP's prospects.   EUR   There is a less pessimistic view on the Euro emerging, with the downside volatility by the markets starting to lessen. Today, we see eurozone consumer confidence for February, and if wage growth is not falling as fast as inflation, there may well be an increase in real income across Europe. A slight improvement in confidence will indicate a healthier eurozone economy. So, we expect the EUR to trade slightly above the current ranges.   USD   Movement in the dollar has been very quiet so far this week. This could be down to investors thinking that January's US CPI number was a one-off and that the disinflation story will restart when the February CPI figure is released in March. We must also consider the unusual strength in Chinese equity markets and CNH, which has tended to undermine dollar strength. There is no US data of note today, but we have several Fed speakers. Tonight, we will see the release of the minutes from the 31st of January FOMC meeting. Recall that this was seen as a neutral meeting until Fed Chair Jerome Powell used an opportunity in the press conference to say that a March rate cut was unlikely. We may see investors and corporates using the dollar strength this month to position for lower levels later in the year.