FOREX: GBP Softer, But Weakness on CPI Could Prove Fleeting
Mar-26 09:34
- GBP is softer against all others in G10 on the back of the February CPI print - the headline missed expectations, with Y/Y CPI 0.2ppts lower than forecast at 2.8%, however the underlying details were more mixed, with services CPI proving stickier than expected against both market and BoE expectations. In addition, slowing core goods inflation came in large part due to clothing discounting, which is often swiftly reversed.
- As a result, GBP/USD has faded further off highs, narrowing the gap with 1.2886 - the March 23rd low and key support. The sustainability of any further weakness will be dependent on how seriously the market sees this slower CPI print as a threat to the BoE's policy cycle. SONIA markets have priced in slightly more aggressive easing this year as a result, but the market is moving quickly to reverse the move into the US crossover.
- AUD and NZD trade well despite the moderation in Australian CPI Y/Y for February, and as the currencies shrug off the softer showing from global equities. Cross demand is largely responsible here, with NZD/JPY rising through resistance at the 50-dma of Y86.29. AUD/JPY is yet to rise through the same level, which has been tested on several occasions this year - meaning a break of 95.37 would be a bullish signal.
- Prelim US durable goods data is the data highlight Wednesday, while the CB speaker slate sees Fed's Kashkari & Musalem, ECB's Knot & Cipollone as well as the BoC minutes release.
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GILTS: Large Flows going through in the spread
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