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June 10th - U.S. core CPI rose 0.2% month-over-month in May, below market expectations of 0.3%, causing U.S. Treasuries to strengthen slightly as bond traders maintained their bets on a Federal Reserve rate hike before the end of the year. The data was seen as easing some pressure on the Fed ahead of Kevin Warshs first meeting as Fed chair next week. Following the CPI release, most U.S. Treasury yields fell less than one basis point. The two-year Treasury yield, more sensitive to short-term monetary policy changes, was at 4.11%, down from around 4.13% earlier in the session. Dan Carter, senior portfolio manager at Fort Washington Investment Advisors, said, "This gives the Fed a little breathing room."June 10 - Goldman Sachs Asset Management strategist Tim Urbanowicz stated that while the recent surge in overall and core inflation is significant and poses headwinds to the economy and cyclical sectors, the driving force from the AI investment cycle, the potential benefits of the Beauty Act, and the lagged effects of the Federal Reserves rate cuts continue to provide strong support.June 10th - US May CPI data showed inflation surging to a three-year high, but a moderate rise in core prices eased Wall Streets concerns about interest rate hikes. Todays CPI data and tomorrows PPI index are expected to influence the Federal Reserves policy stance, which will be announced at the Fed meeting chaired by Warsh for the first time in a week. According to CME FedWatch, prior to the release of the CPI inflation data, the market had already priced in a 70% probability of a Fed rate hike by the end of 2026. However, the market believes that a rate hike at next weeks meeting is highly unlikely, with only a 13% probability of a rate hike at the July meeting. The short-term focus is on whether the Fed will clearly shift from an easing stance to a neutral or tightening stance at the upcoming meeting. This weeks CPI and PPI inflation data, as well as the progress of US-Iran negotiations, may influence the balance between neutral and tightening.Fed mouthpiece Nick Timiraos: May core CPI rose 0.21% month-over-month, very close to expectations, pushing the 12-month core CPI annual rate to 2.9%.German Chancellor Merz: (Regarding nuclear deterrence) We will strengthen European defense and the defense industry.

GBP/USD seeks to regain 1.2300 as higher UK CPI strengthens the case for a rate hike by the Bank of England and the USD retreats

Alina Haynes

Mar 23, 2023 15:00

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During the Asian session, the GBP/USD pair attempts to reclaim the resistance level at 1.2300. Following a vertical correction, the Cable has recovered to near 1.2260 as the market anticipates that the absence of hawkish interest rate guidance from Federal Reserve (Fed) chair Jerome Powell while addressing the economy at the monetary policy meeting indicates that the Fed is close to ending its policy-tightening spell.

 

S&P500 futures have generated some gains in the Asian session following a decline on Wednesday as a result of Fed Powell's confirmation that the fight against intractable U.S. inflation will continue. Chairman of the Federal Reserve Jerome Powell has ruled out rate cuts in 2023, citing the difficulty of controlling inflation. In addition, US Treasury Secretary Janet Yellen's statement that the government "does not plan to insure all uninsured bank deposits" heightened fears of a banking sector collapse.

 

Following a recovery move, the US Dollar Index (DXY) has retreated on expectations that additional credit tightening to protect banking institutions will reduce overall demand, economic activity, and inflation. In the interim, the demand for US government bonds has increased as a result of expectations that US Janet Yellen will end further policy restrictions and reduce support for all bank deposits.

 

On the front of the United Kingdom, the Pound Sterling is likely to maintain its strength as the Bank of England (BoE) is scheduled to raise rates for the eleventh consecutive time. Governor Andrew Bailey of the Bank of England is expected to raise interest rates by 25 basis points (bp) in response to rising food and non-alcoholic beverage prices, as well as rising energy costs, which have contributed to inflation in the United Kingdom.

 

In the midst of global banking turmoil, the Bank of England's (BoE) interest rate decision will be difficult, as policymakers were divided over whether to raise rates further or maintain them at their present level.


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