Are These the Best UK ETFs to Watch in Q1 2024?

Economic

Stocks

Summary:

A brief description of ETFs and five of the best ETFs for UK investors to consider in Q1 2024. These ETFs are selected for their widespread popularity — though this does not equivalate positive performance.

Investing in Exchange Traded Funds (ETFs) is an incredibly popular trading strategy, especially among newer investors. ETFs allow you to buy into a ‘basket of securities' based on a specific sector or investing approach, without having to buy the assets individually.

Investing in an ETF allows for increased exposure to a diversified range of investments, the trading liquidity of equity instead of the rigidity of a mutual fund, and the ability to manage risk by trading futures just like an individual stock.

Of course, ETFs can contain all sorts of investments, from stocks to commodities to bonds. Other than the convenience, ETFs usually offer low expense ratios and lower broker commissions than buying the constituent assets individually.

And with inflation still high, a potential recession inbound, and uncertainty soaring, the diversification of ETFs appears more attractive than ever.

However, it's worth noting that an ETF will only ever perform as well as its underlying constituents. We do offer an ETF screener that can help to inform your investing decisions. But remember, past performance is not an indicator of future returns.

Best UK ETFs to watch

Vanguard FTSE All-World UCITS ETF

This exchange traded fund is one of the most popular in the world, as it aims to track the performance of the FTSE All-World index, made up of large and mid-sized companies in both developed and emerging markets.

This index offers possibly the most diversified portfolio of stocks possible, providing exposure to almost 4,000 companies from across 50 countries at a low annual fee.

However, it does have a geographical bias, with 60% of companies in the ETF based in the US. And because of the relative size of the US tech giants, the FTSE All-World's biggest sector is usually technology — which can be volatile given the sensitivity of tech stocks to monetary policy. Further, over the longer term the index is usually beaten by the S&P 500.

But it's worth noting the benefits of diversification — investors may wish to protect themselves from unpredictable global events, such as the occasional US stock market bubble, and also benefit from emerging markets.

iShares S&P 500 Information Technology Sector ETF

This ETF seeks to track the performance of an index composed of U.S. Information Technology Sector companies as defined by the Global Industry Classification Standard. It boasts diversified exposure to titanic US tech stocks including top holdings Apple, Microsoft, and NVIDIA — but with the caveat that it only invests in the US.

US information technology stocks have recovered significantly across 2023 — rates across the pond may have peaked amid hopes that generative AI could drive further capital growth. Of course, as noted above, tech shares — even the blue chips — are more volatile than other sectors.

WisdomTree Brent Crude Oil ETF

The WisdomTree Brent Crude Oil ETF is designed to closely track the Bloomberg Brent Crude subindex, collateralised by swaps held with the Bank of New York Mellon. Buying shares in this popular ETF gives investors exposure to Brent Crude, globally recognised as the most popular oil benchmark, which is based on oil drilled in the North Sea.

Oil prices remain elevated as a result of post-pandemic demand, alongside wars in Ukraine and the Middle East. In particular, some investors fear that if Iran enters into a regional conflict with Israel, the ‘world's oil chokepoint, the Strait of Hormuz, could be closed.

iShares UK Dividend UCITS ETF

The iShares UK Dividend UCITS ETF is a selective ETF which focuses on the most appealing strength of the some of the best FTSE 100 companies — reliable dividend returns.

Instead of investing in all 100 companies in the UK's premier index, it instead offers diversified exposure to the top 50 UK companies within the FTSE 350 with the highest dividend yield (excluding investment trusts). Of course, there are risks — dividends are not guaranteed and cyclical companies like Rio Tinto or Barratt can see dividend yield fall fast in poor years.

Many investors look to pair this fund with a NASDAQ 100 index tracker ETF, allowing for some exposure to growth for a balanced portfolio.

Invesco Physical Gold ETC

Invesco Physical Gold ETC seeks to replicate the performance of the London Gold Market Fixing Ltd PM Fix Price/USD, with the fund backed one-to-one with gold bullion held by JP Morgan Chase in London bank vaults.

Gold continues to flirt with near-record $2,000/oz levels, as the traditional real asset inflation-hedge, which preserves purchasing power and acts as a protective asset in times of severe market stress, once again performs admirably in this inflationary environment.

It's worth noting that central banks bought a record 1,136 tons of the precious metal in 2022 and continue to buy huge amounts this year.

And of course, gold's price trades in an unofficial pair with the US Dollar; usually, rate rises tend to see gold fall as defensive investors seek the safe haven of the world's reserve currency. However, gold has continued to rise even as rates increase, highlighting its attractiveness in the current environment.

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You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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Devin

Economic

Central Bank

The Bank of England has warned the economy will be on the brink of recession in an election year and signalled it intends to keep interest rates high for an extended period to tackle stubborn inflationary pressures.

After holding rates unchanged at 5.25% for a second consecutive time – the highest level since the 2008 financial crisis – Threadneedle Street said the risks from war in the Middle East and domestic inflationary pressures would force it to keep borrowing costs high despite a worsening outlook for growth.

"It's much too early to be thinking about rate cuts," said Andrew Bailey, the Bank's governor.

"Higher interest rates are working and inflation is falling. But we need to see inflation continuing to fall all the way to our 2% target. We've held rates unchanged this month but we will be watching closely to see if further rate increases are needed."

Issuing updated forecasts as Rishi Sunak's government comes under growing pressure over his economic management in the run-up to an election expected next year, the central bank downgraded its forecast to say it anticipated flatlining growth throughout 2024.

Giving a 50-50 chance of a recession by the middle of next year – beginning around the time a spring election could be held – it forecast four consecutive quarters of zero growth in gross domestic product (GDP), should interest rates follow the path expected by financial markets.

The latest estimates raise the prospect of Sunak failing to meet one of the central targets of his premiership, to grow the economy.

Should rates be held at current levels for longer than markets anticipate, the Bank said Britain could crash into a recession by the summer. Economists regard two quarters of falling GDP as the technical definition of recession.

"At the start of the year, Rishi Sunak and Jeremy Hunt promised to get the economy growing. These figures show we are going in the wrong direction," said Rachel Reeves, the shadow chancellor. "We are forecast to have gone from low growth to no growth, with working people paying the price."

Financial markets rallied sharply after the Bank's decision to hold interest rates – which was widely expected in the City – as investors bet the world's leading central banks had reached the end of the most aggressive cycle of rate increases in decades. Similar decisions had been made by the US Federal Reserve and the European Central Bank.

The FTSE 100 closed up 1.4% at 7,446, as share prices rose across Europe and the yields on US and European government bonds – which move inversely to prices – fell back.

Bailey warned that rates may need to be increased further in the UK to ensure high inflation is squeezed out of the system.

"But we should not keep monetary policy restrictive for excessively long. We have to be mindful of the balance of risks between doing too little and doing too much," he said.

The Bank estimates about half of the force of its previous increases has yet to be entirely felt in the economy, as millions of families brace for the end of cheaper fixed-term mortgage deals bought before it started raising borrowing costs from a record low of 0.1% in December 2021.

Exposing divisions over the risk of persistent inflationary pressures, the Bank's monetary policy committee voted by a majority of six to three to keep rates on hold. A minority – the external members Catherine Mann, Megan Greene and Jonathan Haskel – pushed to restart the cycle of rate increases by calling for a quarter-point rise.

Inflation in the UK remained at 6.7% in September after a sharp rise in fuel costs for motorists in recent months offset weaker growth in the cost of a weekly food shop. Britain has the highest inflation rate among the G7 group of advanced economies.

Threadneedle Street said it expected previous rate increases would help to bring inflation down to about 4.75% by the fourth quarter of 2023 – meaning Sunak would narrowly meet his pledge to halve the inflation rate this year from 10.7% at the end of last year.

The chancellor, Jeremy Hunt, said: "The UK has been far more resilient than many expected, but the best way to deliver prosperity is through sustainable growth."

The Bank still expects to reach its 2% target on inflation by the end of 2025, but Bailey warned further action could be needed. "The risks to inflation remain on the upside. So in a sense that conditions our view for the path for rates," he said.

Financial markets anticipate a cut in rates could come before autumn next year.

Modupe Adegbembo, a G7 economist at Axa Investment Managers, said: "We cannot discount the risk that inflation remains more persistent than we are anticipating and the Bank is forced to keep rates on hold for longer.

"On the other hand, there is a risk that the Bank could be forced to unwind rates earlier and faster if the growth outlook deteriorates faster than we are currently anticipating."

Source: The Guardian

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Forex

Central Bank

Economic

RBA ready for action

The Reserve Bank of Australia is preparing for its 10th rate-setting meeting for 2023. It is shaping up to be the most interesting one in the current round of central bank meetings, as the RBA is widely expected to deliver a 25bps rate hike on Tuesday, raising its main cash rate to 4.35%.

The RBA was among the first central banks to pause in the current tightening cycle but, after three unchanged meetings, Governor Bullock et al look ready to hike again. To be fair, the RBA has been quite clear about its readiness to raise interest rates again and the minutes from the previous October 3 meeting supported this case. There was apparently a good discussion around another 25bps rate move at the last meeting but in the end most members agreed to wait for the early November gathering when new information on inflation and jobs would be available.

Quarterly inflation surprised on the upside

In this context, the incoming information since then has been on the stronger side. The inflation rate for the third quarter of 2023 came in at 5.4% YoY, slightly higher than anticipated, and the producer price index continues to show decent annual increases. Additionally, the comment that the “Board had low tolerance for a slower return of inflation to target”, which appeared in the last minutes, has also caught analysts' attention, fueling the current rate hike expectations.

Interestingly, most investment houses are expecting a rate hike on Tuesday. However, the same cannot be said for the market as it is assigning a meagre 56% probability for a November rate hike with the full 25bps rate move currently priced in by February 2024. It is quite rare for the market not to be fully onboard when analysts show a united front.

Quarterly RBA forecasts on Friday

Additionally, there is a strong possibility that the RBA could maintain its hawkish stance, even after announcing a rate hike. However, the degree of hawkishness will most likely depend on its quarterly forecasts. The last Statement on Monetary Policy published in August had 2025 inflation dropping to 2.8%.

While this is in line with the 2-3% inflation corridor targeted by the RBA, recent geopolitical developments and the decent consumer appetite could lead to an upwards revision in projected inflation. Should this be the case at Friday's publication, the RBA could select to keep the door open for further rate hikes if needed going forward.

Aussie to benefit from a rate hike and a hawkish statement

The aussie has been under considerable pressure against the US dollar since the start of 2023. It recently traded at its lowest level for more than a year before the aussie bulls decided to stage a small upleg. The current move has stopped at the 0.6458 level but the combination of a 25bps rate and a hawkish statement could propel aussie/dollar towards the 0.6512-0.6561 area.

On the flip side, an RBA decision to postpone the rate hike for December could result in a stronger market reaction, with the aussie/dollar pair potentially dropping aggressively towards the November 3, 2022 low at 0.6271. Will the RBA Confirm the Rate Hike Expectations?_1

Will the RBA Confirm the Rate Hike Expectations?_1

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Thomas

Political

China and the United States have recently had frequent high-level diplomatic exchanges. Last week, Foreign Minister Wang Yi visited Washington, where he met with U.S. Secretary of State Antony Blinken and was later received by President Joe Biden.

The two sides have no doubt been working together to bring about another face-to-face meeting between President Xi Jinping and President Biden following their last meeting in Bali, Indonesia, in November last year. This positive move is encouraging not only for the peoples of both sides, but also for those who expect China and the U.S. to cooperate in the face of security challenges to the international community.

Needless to say, the post-pandemic world is not safe. The developments in the Middle East, where we are witnessing a terrible humanitarian disaster unfolding, are disturbing, not to mention that the Ukraine crisis is entering another cold, bloody winter.

As the brutal conflicts continue, the death toll will grow, adding hundreds more to the thousands counted before. For those who luckily survived, hunger, fear and hate come alone or together to hit them.

People everywhere can feel their pain and suffering. People everywhere are calling on the international community to restore peace or at least to prevent more tragedies from unfolding. For this to happen, it is urgently necessary to mobilize collective actions through the United Nations-related authorities.

The UN has endeavored to fulfill this mission for more than seven decades. Today, it remains the sole intergovernmental organization that enjoys universal representativeness.

Yet we must admit that the UN has its own shortcomings. Although it seeks shared solutions for common problems, its efficacy depends on the unity of its individual member states. It is crystal clear that peace can hold only when UN solidarity is manifested. If the UN itself is divided, for whatever reason, peace will fail.

Aware of this, the UN vested a special weighed power to the Security Council, which includes five permanent members and 10 nonpermanent ones. The institutional design of the UN expected the great powers to work together to facilitate peace. According to the agreed-upon procedures, unless there is consensus within the Security Council, there will not be an authorized security action. For this reason, any major political split in the Security Council can prove detrimental to world peace.

Unfortunately, this is what has been happening recently. Allergic to the overestimated Chinese challenge, the U.S. has lately pursued a comprehensive strategy to outcompete China. The U.S. has sought to mobilize its like-minded allies and partners to form a strategic coalition to insulate or even isolate China politically, economically and technologically. U.S. efforts to form a new Cold War bloc targeting China has not only damaged bilateral relations, but also undermined the foundations of the global governance structure.

To win its fictitious grand competition with China, the U.S. took almost all feasible measures to contain China. It asked third parties to follow suit to make the world "safe" for the U.S. and like-minded allies and partners. U.S. efforts to persuade others to stand with it and to dissuade others from interacting with China seriously erode the solidarity of the international community.

The U.S. was so determined that it insisted on allocating its most capable resources to press China. When the U.S. was busy competing with China, some risk-takers began to take advantage of the circumstances. This is partly the reason why regional crises keep on emerging.

Had the U.S. not competed with China so fervently, the international situation could have been less chaotic than it is today.

Now is the time for the U.S. to acknowledge and accept the simple truth that China is a partner rather than a threat. As a permanent member of the UN Security Council, China supports international efforts to stabilize regional turmoil. The U.S. competing relentlessly with China can only disable both sides' capacity to keep peace, let alone to build peace. On the other hand, improving bilateral relations will enable both sides to contribute more to world peace.

Hopefully, the upcoming meeting of the Asia-Pacific Economic Cooperation forum in San Francisco will give both sides a chance to spare themselves the flawed competition game. As we can see, the Biden administration has stepped a little away from the previous tracks, creating a condition for the U.S. to slightly adjust its China policy. The bilateral relations, though still fragile, have managed to reset step by step.

The whole world is watching and waiting for a more cooperative and less conflict-ridden China-U.S. relationship. Indeed, at a time of shrinking trade, weak growth, widespread inflation and regional chaos, there are too many urgent and emerging problems to be addressed collectively. The destabilized world calls on the U.S. and China, as the largest economies and the most capable actors, to play their own stabilizing roles.

Source: ChinaDaily

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Justin

Central Bank

Economic

The Bank of England has kept rates on hold for a second consecutive meeting and, barring some major unpleasant surprises in the data between now and Christmas, it’s fair to say the tightening cycle is over.

On the face of it, this latest decision looks neither surprising nor controversial. Six members voted to keep rates on hold and three for a hike, in line with what more or less everyone had expected. With the exception of Sarah Breeden, where this was her first meeting, the remaining members voted exactly as they did in September – a recognition that we’ve had very little data since then, and what we have had hasn’t moved the needle for policy.

But beneath the surface, we detect hints that the Bank is uncomfortable with markets beginning to price rate cuts for next year. Ahead of the meeting, investors were pricing at least two 25 basis point cuts by the end of 2024. BoE Governor Andrew Bailey is quoted as saying it’s “too early” to be talking about cuts, while the statement says rates need to be restrictive for “an extended period of time”. That's a slight hardening in the language compared to what we'd seen in August and September. And while the Bank’s models forecast inflation a touch below target in two years' time – which is considered to be the time horizon over which monetary policy is more effective – they show headline CPI at 2.2% once an “upside skew” is applied.

That’s policymakers trying to tell us that, at the margin, the amount of tightening and subsequent easing may be insufficient to get inflation back to target. That said, the committee is visibly putting less weight on its forecasts than it once might have done given ongoing uncertainty and poor model performance.

The Bank's models point to inflation at or just below target in two years' time

Bank of England Keeps Policy Steady but Pushes Back Against Rate cut Expectations_1

As has been clear since the start of the summer, this is a central bank whose overriding goal now is to convince investors that it won’t need to cut rates for a significant period of time. However, we believe markets are right to be thinking about rate cuts from next summer. As the BoE itself acknowledges, much of the impact of past tightening is still to hit the economy. We estimate the average rate on mortgage lending, which so far has gone from 2% to 3.1%, will go to 3.8% by the end of 2024 as more homeowners refinance. It will be higher still if the Bank ultimately doesn’t cut rates next year.

We also forecast core inflation to be below 3% by next August – and assuming the jobs market continues to gradually weaken, we think the Bank will be in a position to take its foot off the brake. We’re forecasting a gradual easing cycle that takes Bank Rate back to just above 3% by the middle of 2025 from the current 5.25% level.

Source: ING

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Devin

Central Bank

Economic

The UAE Central Bank kept its benchmark interest rate steady, mimicking the U.S. Federal Reserve's move to maintain its policy rate for the third time this year amid a gradual drop in core inflation.

The U.S. central bank left the federal funds rate between 5.25 per cent and 5.5 per cent at the end of its two-day meeting on Wednesday.

The rate is at its highest level since 2001, as the Fed tries to bring inflation down to its target range of 2 per cent. Consumer prices in the world's biggest economy soared to a four-decade high in June last year.

Annualised inflation in the U.S. fell to 3.7 per cent in September, after hitting the 9.1 per cent high in June 2022.

The Fed has kept the rates steady at its last two meetings but is widely expected to increase the benchmark narrowing rate at least once more this year to cool its economy and wage growth.

Data showed U.S. retail sales exceeded forecasts and industrial production strengthened in September, while non-farm payroll gains have averaged 266,000 in the past three months, a robust pace.

While three and six-month measures of core inflation are running below 3 per cent, Fed chairman Jerome Powell last month warned short-term measures were often volatile.

"In determining the extent of additional policy firming that may be appropriate to return inflation to 2 per cent over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the Fed said.

Most central banks in the GCC follow the Fed's policy rate moves due to their currencies being pegged to the U.S. dollar, with Kuwait the only exception in the six-member economic bloc as its dinar is linked to a basket of currencies.

The UAE Central Bank maintained its base rate for the overnight deposit facility at 5.4 per cent.

The banking regulator also maintained the rate applicable to borrowing short-term liquidity from the regulator through all standing credit facilities at 50 basis points above the base rate, it said in a statement on Wednesday.

The base rate, which is anchored to the Fed's interest on reserve balances, signals the general stance of the UAE central bank's monetary policy and provides an effective interest rate floor for overnight money market rates.

Despite higher interest rates, the UAE economy has maintained a robust growth momentum, after expanding 7.9 per cent in 2022, its biggest rise in nearly 11 years.

The Arab world's second-largest economy grew by 3.7 per cent in the first six months of this year, driven by a sharp expansion in the country's non-oil sector, Abdulla bin Touq, Minister of Economy, said on Monday.

The UAE's non-oil economy grew a “staggering” 5.9 per cent in January-June this year as the country continues to pursue its diversification goals, despite stiff global economic headwinds.

Business activity in the UAE's non-oil private sector expanded robustly in September as the addition of new clients, competitive pricing and sturdy underlying economic conditions increased demand.

The seasonally adjusted S&P Global purchasing managers' index reading climbed to 56.7 in September, from 55 in August, setting it well above the neutral 50 mark that separates growth from contraction.

The UAE economy is forecast to expand by 3.3 per cent this year, reflecting oil production cuts agreed upon by Opec members, according to the Central Bank's latest Quarterly Economic Review.

However, Mr. bin Touq on Monday said gross domestic product was estimated to grow by 3.6 per cent this year.

An array of measures adopted by the government have improved the resilience of the economy despite the challenges of inflation, monetary policy uncertainty and slowing global economic growth.

Reform efforts under the UAE 2050 strategies and progress made in comprehensive economic partnership agreements (Cepa) will boost trade and integration in global value chains and further attract foreign direct investment, according to the International Monetary Fund.

The UAE has finalised seven Cepas so far and aims to sign another 20 by the end of 2030, Mr. bin Touq said.

Inflation in the Emirates – stoked by increasing energy prices, imported inflation and rising employment – was 4.8 per cent last year and is projected at 3.1 per cent and 2.6 per cent in 2023 and 2024, respectively, reflecting lower energy and food prices, the Central Bank said. That compares with a global inflation rate of 8.7 per cent last year.

Global inflation will fall to 6.8 per cent this year and 5.2 per cent in 2024, the IMF estimates.

This is still above the preferred 2 per cent target of most central banks.

Source: The National New

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SAXO

Economic

Forex

Fed's Hawkish Hold but Dovish Bias, AUD Rallied and JPY Relieved_1

The Federal Reserve left policy rates unchanged at 5.25-5.50%, in line with expectations and the market pricing. There were only slight changes to the FOMC statement and the door for further rate hikes was left open. Officials noted that they were not confident that rates were "sufficiently restrictive" yet. While Powell tried to signal a hawkish hold, there was a sense that Fed has come to an end of its rate hike cycle with little the Q3 GDP report or the blowout September jobs numbers not being read out to be very strong and warranting more rate hikes.

Powell still emphasized a data-dependent mode, and there are two more inflation reports and two employment reports ahead of the next meeting in December. But growth expectation was changed from ‘solid' to ‘strong' and there was some acknowledgement of higher longer-end yields, with tighter financial conditions mentioned alongside tighter credit conditions. Given the weakening consumer and business confidence trends and rising risks of delinquencies, the odds remain tilted to suggest that we have reached an end of the Fed's tightening cycle. However, Powell was clear that the Fed was not thinking about rate cuts yet.

There was no dot plot at this meeting which could have clearly hinted whether officials see another rate hike or not, but a key signal came from Powell's comment where he said that the September dot plot – which had another rate hike in place – is now outdated.

Overall, markets interpreted the meeting to have been dovish. Treasury yields slumped, with 10-year yield down close to 20bps to sub-4.75% and 2-year yield down 14bps and heading further lower to 4.92% in early Asian hours.

What does this mean for the path of dollar?

The Fed meeting was just a confirmation of what we have been writing earlier. The upside in US dollar is getting limited with rate hikes coming close to an end and positioning getting stretched. But there remain no clear alternatives to the dollar at this point, and the USD is likely to remain supported until US economic data starts to weaken.

AUD: More sensitive to US yields, RBA ahead

AUD has been one of the most sensitive currencies to US yields lately, more so than the JPY. The slump in Treasury yields overnight further boosted AUD which crossed the 50DMA and 23.6% retracement, suggesting a short-term uptrend. Pair broke above 0.64 and next ley level may be the 0.6519 where the 100DMA and 38.2% retracements levels coincide. Fed's Hawkish Hold but Dovish Bias, AUD Rallied and JPY Relieved_2

Fed's Hawkish Hold but Dovish Bias, AUD Rallied and JPY Relieved_2

Aussie trade data out this morning, however, showed exports turning negative and trade balance coming in below expectations. This goes to support the case we have been making about the trade terms being a potential negative for AUD compared to NZD. But with RBA rate hike still in play for next week's meeting, there could still be more upside for AUD. Market is pricing in 50% odds of a rate hike for the November 7 meeting, and more than a full rate hike is priced in by February. This could mean a significant risk for RBA to surprise dovish, while a small upside to delivering hawkish.

Market Takeaway: AUD/USD may have some room for upside as markets absorb Fed's dovish message, but RBA meeting next week has a high bar to send hawkish signals and structurally AUD remains for downside on trade terms, China underperformance, geopolitical concerns and risks of a global recession.

JPY: Fed takes off the pressure

For now, the Fed has taken off some of the pressure for the Japanese yen after the Bank of Japan managed to surprise dovish again earlier this week. USDJPY rose to 151.50+ as we expected given 150 was no longer the line-in-the-sand, but is now back below 150.50 on Fed's dovish turn.

From here on, US data will likely remain the key driver of JPY. Any outperformance in jobs data or upside surprises in inflation could still bring USDJPY back towards 152. However, high frequency data suggests that after longer lags, policy tightening may be filtering through the real economy now. If US data starts to show a serious deceleration, there could be an upside potential for the yen, but fundamentals still remain aligned for further yen weakness for now. Treasury yields could still run higher given Fed's QT and massive Treasury supply, and carry continues to favor a bearish yen view.

Market Takeaway: USD/JPY could still go higher to test 152 before the US economic data starts to weaken and Fed rate cut pricing becomes more aggressive.

GBP: BOE on the agenda

Bank of England today will likely try to strike a hawkish tone as services inflation and wages still remain very high, but market is turning its focus to growth headwinds and ability to hiek further for the major central banks remains limited.

Key thing to watch at today's BOE meeting will be the vote split. One of the members who voted for a rate hike last meeting has since been replaced, and the replacing member is expected to vote with consensus. This shifting vote split towards the dovish side could bring GBP downside. However, GBP/USD has lately seen a high positive correlation to US stocks, and the Fed's dovish turn may help there. But overall, equities could see downside pressures building amid high rates and mixed earnings, spelling further downside for sterling.

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