Markets predict a Bank of England rate cut | 10 April 2024

Events to watch out for today:

15:30 EET. USD - Consumer price index

21:00 EET. USD - Publication of the Fed meeting minutes

GBPUSD:

The GBP/USD pair is trading near 1.2675 in the early Asian session on Wednesday. The US Dollar Index (DXY) is consolidating just above 104.00 amid cautious sentiment. Investors await US consumer price index (CPI) data as well as the release of the Federal Reserve meeting minutes later in the day.

The latest forecast from the UK's Office for Budget Responsibility (OBR) expects the UK economy to grow by 0.8% this year on the back of a recovery in domestic demand. Monthly gross domestic product (GDP) data will be released on Friday. If the GDP data comes in stronger than forecast, it could slow the easing cycle and boost the Pound Sterling (GBP) against the US Dollar. Markets are currently forecasting a Bank of England (BoE) rate cut of 75 basis points (bps) this year, which would see the prime rate cut from its current level of 5.25% to 4.5%.

Some Federal Reserve (Fed) officials have made hawkish statements. Chicago Fed President Austan Goolsbee said Monday that the recent jobs report was "quite strong," but the central bank must weigh how long it can maintain the current interest rate without hurting the economy. Meanwhile, Minneapolis Fed President Neel Kashkari said the labor market is no longer "hot" but remains tight. He said the baseline scenario is that inflation will continue to decline.

Financial markets priced the probability of a rate cut in June at nearly 57%, while the probability of a rate cut in July fell below 75%, according to the CME FedWatch Tool. All eyes will be on U.S. consumer price index data for March, as it could help the Fed determine the direction of monetary policy after last month's figure rose 3.2% from a year earlier. Signs of sustained inflation and solid growth in the US could help strengthen the dollar in the near term.

Trading recommendation: Trade predominantly with Sell orders from the current price level

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