GBP: Prolonged Tariff Reprieve and Stocks Strength Could See GBP Toward 1.34
Apr-14 08:09
- Following Liberation Day, GBP was a standout underperformer, as the UK economy signaled unique exposure to Trump's tariffs given the government's leniency toward countermeasures. The opposite is now true: with reciprocal tariffs delayed, GBP is now rallying well - underscoring GBP's correlation with risk - which looks through only marginal tweaks to monetary policy pricing.
- GBP strength today is accompanied by a further rally in the FTSE-100 (now ~7.5% off lows, but still ~9% off highs), despite the often observed inverse correlation between the two - which serves as a further signal that tariff reprieve and risk-on is the primary driver of this move, rather than a reorientation of BoE pricing for 2025.
- This makes EUR/GBP a key cross ahead. EUR's status as a quasi-safe haven through US-triggered volatility has seen the price hit near 18-month highs and the most technically overbought since 2022. As such, the cross could be subject to a sharper reversal should market jitters around tariffs further recede.
- Technically, moving average studies remain in a bull mode position that highlights a dominant uptrend. An extension higher would open key resistance and the bull trigger is 1.3207, the Apr 3 high.
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
Mar-14 21:28
The MNI Markets Team’s expectations for the updated Economic Projections in the March SEP are below.
- The unemployment rate is likely to rise slightly for 2025 alongside a downgrade in GDP growth, while the 2025 core and headline PCE inflation projections are set to rise again. Changes to later years will likely be limited, however.
- More detail on the shift in Fed funds rate medians is in our meeting preview - we will add more color next week.
FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Mar-14 21:25
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
Mar-14 21:17
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
