US inflation & UK GDP results

Central bank interest rate calls for May look to be aligned..

Yesterday, the S&P 500 gained on the back of US inflation data which saw 'cable' also rise. 5.0% was better than the 5.2% expected and core inflation also fell, much to the surprise of some analysts. It looks like once again the Fed is getting the upper hand on inflation and so aggressive interest rate hikes are no longer needed (bad news for the USD).

Today, the MSM will have you believe the UK is doomed after offering flat-line GDP figures for February (to be fair the latest IMF forecast for UK growth doesn't help matters). But, the bottom line should be the focus and that is, everyone expected things to be so much worse. As it stands, GDP is now 0.3% above its pre-pandemic level.

The BoE said the UK was in a recession last October and that it would last 18-months. 5-months after that statement and a recession has still not arrived. February's 0% growth figure was literally just shy of the 0.1% forecast and was only so low because of public sector workers downing tools. It means the UK will now expand in the first quarter of the year, beating all expectations for the second quarter running.

Both sets of data are good news for the respective countries, however, as far as the currencies are concerned the releases weaken their value. As expected, the Euro has been the victor from the outcomes this week (although nowhere near as much as many had predicted) and for the first time in months, playing the 'sitting duck' role has proven fruitful for the single currency. 

Money markets have priced in a 70% chance that the BoE, ECB & Fed will all raise interest rates by 25bp next month. This is a high chance of probability in this game, but as nothing is concrete from central bankers, we predict at least one of them to cause a surprise.