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Two Bank policymakers attempted to cool excitement over rate cuts on Tuesday. Editorial credit: William Barton, via Shutterstock
Sterling ended a losing streak to climb by half a cent against the euro and almost a cent against the US dollar.
Bank of England (BoE) rate setters used a pair of speeches to try to supress expectations of imminent cuts on Tuesday. The pound recovered some of its losses as a result, although the comments are unlikely to shift the direction of travel in the longer term.
After Dave Ramsden sat markets ablaze last Friday, two Bank of England policymakers yesterday tempered the excitement. Jonathan Haskel and Huw Pill, the Bank’s chief economist, were both much less robust in their language around interest rate cuts, instead urging caution and restraint – the two sexiest words in the central banker’s dictionary.
Back on the frontline of economic data, the S&P Global UK services PMI rose to 54.9 at this month’s first read, well above forecasts of 53. April’s result was the best outcome in almost a year and the sixth consecutive monthly increase.
In good news for stretched shoppers, UK grocery inflation fell to its lowest in two and a half years in April. The price of groceries fell from 4.5% to 3.2%, with retailers particularly keen to use promotions and special offers to keep the checkout tills chiming.
Over in Germany, the flash read for HCOB manufacturing PMI rose slightly to 42.2 in April from last month’s 41.9. Incoming orders fell to their lowest in five months, while analysts pointed out that quicker delivery times pointed to weaker demand.
After a dominant week, it was the US dollar’s turn to feel the pressure yesterday. Weaker than expected PMI data fuelled losses against the pound and the euro, as well as diminishing concerns of escalation in the Israel-Iran standoff.
New single-family home sales in the US meanwhile soared, up from -5.1% in February to a growth of 8.8%. The total is the highest for six months and underscores the tough task facing the Fed in wrestling inflation back under target.
As markets started to climb down from the concerns of last week, commodity prices cooled. The price of gold and oil both retreated yesterday, although gold remains more than 10% up compared to the start of this year.
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GBP: Borrowed time
The UK government borrowed more last month and over the course of the last year than had been expected. UK borrowing over 2023/24 was £6.6bn more than the Office for Budegtary Responsibility (OBR) forecast, a bad sign for the nation’s finances and an even worse one for Jeremy Hunt, who is widely thought to be looking to cut taxes further.
GBP/USD: the past year
EUR: Don’t be fooled
An increase to German PMI would usually be greeted warmly. However, having dug deeper into the data, there was a sense that economic conditions in Europe’s economy were getting worse, not better.
GBP/EUR: the past year
USD: Flash in the pan
Preliminary (or flash, to use economic parlance) composite PMI data for the US came in below expectations at 50.9 in April, well below March’s 52.1. The US dollar tumbled in the aftermath, but it may take some time to gauge if the shift to weaker growth is transitory or here to stay.
EUR/USD: the past year
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