We anticipate the USD to stay higher supported into the Wednesday FOMC choice and past, with tighter coverage circumstances lifting the USD, notably towards these currencies the place financial coverage is poised to lag. A 50bps hike is locked in for Wednesday and hawkish steering is anticipated to level to extra giant hikes down the highway, particularly following the bounce in Q1 Employment Price Index. An announcement on the begin to the Fed’s stability sheet wind down—seemingly inside just a few weeks—might add to USD tailwinds. US knowledge releases this morning embody ISM/PMI Manufacturing knowledge.
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We predict odds are tilted in the direction of extra GBP losses this week because the financial institution will seemingly ship a message that clearly contrasts with hawkish expectations in markets. The financial institution’s new forecasts will seemingly present an excellent better overshooting of inflation, however is within the medium-term the place its projections will present an necessary undershooting given forecasts that incorporate aggressive price expectations in markets. Markets are satisfied of a 25bps this week, with very low odds of a 50bps improve. We agree with this name. It’s the markets’ expectation of six to seven 25bps hikes by year-end that must be reined in, and we expect the BoE might kick-off a interval of repricing that weakens the GBP additional—in the direction of the mid-1.22s, at the least.
