Dutch GDP Growth Contracts, But Underlying Developments Seem Positive

Economic

Summary:

The Dutch economy contracted by 0.1 % in the first quarter of 2024 thanks to increased inventories, contracting exports and a negative statistical discrepancy.

The Dutch economy contracted by 0.1 % in the first quarter of 2024 thanks to increased inventories, contracting exports and a negative statistical discrepancy. While this seems worse than expected, most expenditures performed better than we'd thought, and that indicates solid underlying demand growth.

Dutch GDP Growth Contracts, But Underlying Developments Seem Positive_1

Demand more solid than the headline figure suggests

Although the GDP figures came in weaker than expected, underlying developments seem better than we'd first thought. A statistical discrepancy is the main cause of the contraction. Without that effect of -0.4% being knocked off GDP, the growth development would have been positive.

There was also a temporary negative development of a 0.7% GDP reduction in inventories, dragging down the GDP rate by 0.1 percentage points; it was an acceleration of a substation development in the final quarter of last year. Household consumption, investments, and exports outperformed our forecasts, meaning demand was stronger than expected.

Public and private consumption were significant growth engines

Yes, exports declined (by -0.1%, adjusted for seasonal effects) and that is a real demand factor that held back the economy. But the expected contraction was, indeed, mild. The net contribution of the trade balance (exports minus imports) to GDP was mildly negative (-0.1% GDP), as imports stagnated (0.0% QoQ) while exports contracted.

Household consumption made the biggest positive contribution to growth, growing 0.7% QoQ. Consumer confidence and purchasing power are on the rise, and the early timing of Easter also contributed positively to household developments. However, unusually high temperatures held back household developments a little, suppressing energy consumption.

Government consumption expanded by a solid 0.6% QoQ, similar to the previous quarter and very much as expected. The number of hours worked particularly increased in public administration and health care.

Investment expanded mildly (0.4% QoQ), to our surprise. This was mainly caused by un upswing in the purchase of transportation equipment and, to a lesser extent, machinery, software & databases as well as higher real estate transaction costs. All other types of capital expenditure fell, the most notably in computer equipment and the construction of all types of real estate.

A contraction in manufacturing and construction

Among Dutch industries, culture, recreation & sports, agriculture & fishery, construction and, notably, manufacturing contracted. Manufacturing had its largest contraction (-3.8% QoQ) in value-added since the second quarter of 2020. And within manufacturing subsectors, Looking at production figures for subsectors within manufacturing, transport equipment, pharma and basic metals fell back. This big industrial contraction is not expected to last, as forward-looking manufacturing indicators have lately been improving.

Mining and quarrying saw the biggest decline in value-added, due to lower gas demand caused by higher temperatures and the closure of the Groningen gas field. The energy supply sector, water & waste, trade, transport & storage, real estate, business services and the semi-public sector (government, education & health) showed an expansion of value-added. Financial services and ICT stagnated.

Growth still expected for 2024

The outcome for the first quarter of this year was worse than our forecast of +0.2% QoQ, but that forecast would have been almost spot on without the large statistical discrepancy. The direction of underlying expenditure developments was as expected, except for the positive investment surprise. Barring any further surprises and with the possibility of future revisions of statistical discrepancies, our most recent annual GDP growth forecasts for 2024, which stand at 0.7%, will not need many tweaks in next month's forecasting round. This means an outlook of growth but somewhat below the potential rate.

While we still expect private investment to remain a drag on growth in the future, we forecast trade developments to improve. This should cause the return of Dutch export growth in the current quarter. At the same time, household consumption is expected to continue to be one of the main drivers for GDP, as nominal income developments are expected to outpace inflation by a few percentage points. Also, public consumption is likely to remain one of the main contributions to the expansion.

An important domestic uncertainty in the near term is political. No new government has been formed since the November 2023 parliamentary elections, even though talks might be in the final stages. In fact, political leaders of the four parties involved in the negotiations signalled much optimism yesterday, so an agreement might be presented later today. Should policy uncertainty drag on for much longer, it may cause more hesitance in investment behaviour, as the policy path on some pressing issues, such as nitrogen emissions and the future of agriculture, may remain opaque.

That being said, based on the manifestos of the negotiating parties, it seems likely that public expenditure will continue to rise in the coming years, albeit possibly by a bit less than set out by the previous government. As such, public expenditure may be one of the driving forces for Dutch GDP growth this year and beyond.

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Warren Takunda

Cryptocurrency

Summary:

Bitcoin needs the high yield rate to fall as low as 6% to reach a “sustainable all-time high,” says crypto analyst Timothy Peterson.

One analyst says only one main indicator is necessary to predict whether Bitcoin can surpass its all-time high of $73,700 later in 2024, and it all rests on the shoulders of the United States Federal Reserve.

“The U.S. high yield rate is a great indicator, and it really needs to drop below 6 or 7% for a sustainable all-time high,” Timothy Peterson, Cane Island Alternative Advisors founder and investment manager, told Cointelegraph. He explained that the primary measure he looks to for Bitcoin price action is interest rate movement.

At the time of publication, the U.S. high yield rate — which represents the rate of high-yield corporate bonds because of their higher risk of default — is 7.54%, according to YCharts data.

Peterson predicted that if yield rates fall within the “6 or 7%” range, Bitcoin could see the much-anticipated $100,000 price tag by the fourth quarter of 2024 or, at the latest, the second quarter of 2025. Bitcoin could top $100K but only if 'high-yield rate' falls below 7% — Analyst _1

Bitcoin could top $100K but only if 'high-yield rate' falls below 7% — Analyst _1

The U.S. high yield B effective yield is currently 7.54%.

Typically, the Federal Reserve lowering interest rates leads to the high-yield rate following suit, something that nearly two-thirds of economists surveyed predict will happen in September, according to a recent survey conducted by Reuters.

Interest rates are perceived as an important indicator for crypto traders, as lowering rates typically leads to less yield for investors in safe-haven securities such as bonds and term deposits.

As a result, more investors turn to riskier assets such as Bitcoin to achieve better returns on investment. Bitcoin could top $100K but only if 'high-yield rate' falls below 7% — Analyst _2

Bitcoin could top $100K but only if 'high-yield rate' falls below 7% — Analyst _2

Bitcoin trades at $61,871 at the time of writing, down 5.08% over the past 30 days. Source: CoinMarketCap

Peterson argued that overall markets are generally “flat and volatile” between September and October.

“Not always, but many times,” he commented. However, with the upcoming U.S. election, he claimed the “uncertainty will be higher through October” ahead of the election day, currently slated for Nov. 4.

Meanwhile, crypto analyst Scott Melker, also known as “The Wolf of All Streets,” declared that the Fed cutting interest rates isn’t always favorable for assets outside of fixed-income investments.

“There is a wildly popular theory that a Fed pivot is good for markets,” he stated in a May 14 post on X.

“Rate cuts generally precede major dips,” he commented on the wider overall market.

Source: Cointelegraph

Risk Warnings and Disclaimers

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Damon

Economic

Summary:

Current market pricing oscillates between expecting 1-2 interest rate cuts this year, and the data's performance could influence the balance of power within the Fed. The latest inflation report may serve as a crucial reference for whether the Fed can initiate its first rate cut in the summer.

On May 15, local time, the US Bureau of Labor Statistics is set to release the April CPI inflation report. Currently, the market expects April CPI inflation to be at 3.4%, with core inflation expected to be at 3.6%.

Last month, both month-on-month and year-on-year CPI inflation significantly exceeded expectations, severely dampening market expectations for rate cuts. The inflation reports over the past three months have led to a shift in market perceptions regarding inflation. From the notion that the inflation process was not proceeding smoothly to the belief that it had stalled, and finally to the recent perception of inflation reversal.

Furthermore, the tone of speeches by Fed officials confirms that there is no consensus within the Fed on the issue of the first rate cut.

Recent data has been mixed, but overall it has boosted expectations of rate cuts. Looking back at GDP and nonfarm payroll data performance in the first quarter, the current economic situation in the US can be summarized as "stubborn inflation, economic slowdown." Meanwhile, the New York Fed's inflation expectations survey and the University of Michigan's short-term/long-term inflation expectations have both risen from previous values. This indicates that market expectations of inflation reversal are not unfounded.

While it seems certain that there will be no rate cut in June, this does not diminish the importance of the upcoming CPI report. If CPI inflation exceeds expectations again this time (rising for the fourth consecutive month), it can no longer be explained by seasonal factors alone, and the market has every reason to believe that the inflation reversal has begun.

Now, let's look ahead to the April CPI based on the March CPI report.

US April CPI Outlook: Inflation Expected to Decline Beyond Forecasts_1

Housing Inflation

Housing inflation has been key to the ability of core inflation to be lowered. Previously, the Fed had indicated that lower housing inflation would soon be reflected in the CPI weights. But this is not the case. Fed Chair Powell also remarked in his speech on Tuesday, "Housing inflation has been a bit of a puzzle. Lags from current rents to CPI is longer than we thought." This means that it will take longer for housing inflation to be reflected in the CPI weights.

However, multiple sources indicate that this figure will drop significantly in the coming months.

With newly contracted rents exhibiting a significant slowing trend, and these newly signed leases being a reliable forward-looking signal of overall rent growth, it is increasingly likely that housing costs will continue their recent slowing trend. Despite last year's immigration surge, vacancy rates in multifamily apartments are approaching historic highs and housing inflation is already signaling a downward trend.

The bottom line is that Steven Englander, Chief FX Strategist at Standard Chartered, conducted regression analysis on both actual and forecasted Owners' Equivalent Rent (OER), indicating a sharp decline in OER in the coming months.

US April CPI Outlook: Inflation Expected to Decline Beyond Forecasts_2

The analysis is based on experimental series of new tenant rents and all tenant rents constructed by Federal Reserve and Bureau of Labor Statistics researchers. From the regression analysis, it is evident that the first-quarter rise in OER was an aberration, and downward pressure may intensify in the coming months.

The formula indicates that the quarter-over-quarter inflation in average OER for the second quarter is only 0.29%, not far from pre-pandemic levels, significantly lower than the first quarter's 0.48%. Given the high proportion of OER in core CPI, this decline will cause a 0.06% quarter-over-quarter decrease in core CPI. If other sub-items are also below expectations, core CPI is expected to decrease from the market's expected 0.3% to 0.2% or even lower.

In other words, OER price inflation is expected to remain soft in the subsequent quarters, which is likely to bolster inflation expectations and decrease to a level sufficient for the Fed to cut rates.

However, a risk to note is that the current high demand for single-family homes in the market may lead to continued rent increases. The supply of existing single-family homes in March was only 3.1 months, while a balanced market typically has a supply of 5 to 6 months, indicating tight supply. Moreover, homeowners who refinanced mortgages at low rates before the pandemic are unlikely to sell their homes in the current high-rate environment, exacerbating housing supply shortages and supporting house prices.

Energy Prices

Currently, crude oil prices are stabilizing, largely benefiting from supply-side improvements such as the significant increase in US crude oil inventories and limited fluctuations in international oil prices. Additionally， geopolitical conflicts in the Middle East have not significantly spilled over into energy prices.

According to the American Automobile Association (AAA), the current average gasoline price in the US remains largely steady at $3.619 per gallon, lower than $3.651 a week ago and $3.633 a month ago.

Observing the performance of oil prices, Brent crude oil futures have experienced a dive of approximately $10 from their previous pinnacle exceeding $90 per barrel, while US crude oil futures have breached the $80 per barrel threshold. As concerns over supply have alleviated, oil prices declined once again on May 8th, with Brent crude oil futures hovering around $82 per barrel and US crude oil futures around $77 per barrel.

What's more, per the latest monthly Short-Term Energy Outlook from the US Energy Information Administration (EIA), the forecast for global crude oil demand growth in 2024 has been revised down by 30,000 barrels per day to 920,000 barrels per day, while the forecast for global crude oil demand growth in 2025 has been revised up by 70,000 barrels per day to 1.42 million barrels per day. Overall, the growth rate of global crude oil demand this year is expected to be lower than previously anticipated, whereas the production growth rate is expected to be higher.

However, it is important to note that although recent geopolitical conflicts in the Middle East have not had a significant impact on crude oil supply, there is still an upside risk to oil prices due to the conflicts occurring near the Strait of Hormuz.

The ceasefire agreement convened in Egypt last week was thwarted by Israel's incursion into Rafah. Nonetheless, crude oil prices did not demonstrate an upward trajectory in response, suggesting that prevailing market valuations had already factored in the anticipation of such occurrences. Moreover, subsequent conflicts have not escalated, with even an Israeli official stating that "negotiations have not reached a deadlock." This implies that there is still a possibility of further ceasefire negotiations, greatly alleviating expectations of price increases caused by geopolitical conflicts.

New Vehicles/Used Cars and Trucks/Motor Insurance

New vehicles/Used cars and trucks in March continued to contribute to the decline in core inflation. This industry appears to have entered a sustained downward trend of price cuts.

Specifically, new vehicles in March decreased by 0.2% MoM and 0.1% YoY. Used cars and trucks fell 1.1% MoM and 2.2% YoY in March.

US April CPI Outlook: Inflation Expected to Decline Beyond Forecasts_3

The bearish market in the US used cars and trucks market, which was unanimously confirmed by the industry in November last year, now seems to be getting worse in April 2024.

According to the data, the well-known Manheim Used Vehicle Value Index has fallen 14% YoY to 198.4 in April, which is the lowest value for the index since Q1 2021. Compared to the peak three years ago, the Manheim Used Vehicle Value Index has fallen by 23%. With the decline in used car prices, the CPI is expected to be pushed lower.

However, motor insurance is moving in a very different direction than used cars and trucks, with prices rising 2.7% MoM and a staggering 22.2% YoY in March.

The cost of repairing and replacing cars and trucks in the US is increasing. With labor shortages and rising labor costs, the charging of repair shops is higher, and parts are getting more expensive, but demand has always been outstripping supply. As of March, the overall cost of maintaining and repairing US cars was up 8.2% from a year ago. At the beginning of 2023, the growth rate was as high as 14.2%.

However, insurance companies will raise their premiums as the overall price of the car and the cost of car repair increases, so as to protect their own interests. According to relevant data, insurance accounted for an average of 16% of the total cost of a car in 2019, and it is expected to increase to 26% in 2024. In addition, motor insurance premiums are estimated to rise further by 7% this year.

Although motor insurance accounts for a relatively small proportion of the CPI, it may still cause a lot of "trouble" to disinflation if it continues to grow at this rate. On the bright side, while the impact of higher premiums for buying decisions remains unclear, there are signs that it has become an important factor for car buyers. This indicates that price-sensitive customers will forgo their car purchases due to high premiums, which will lead to continued sluggish car sales and lower prices of new vehicles/used cars and trucks.

Conclusions

Judging from the above analysis, this CPI inflation report seems to have the potential for further decline. Both energy prices and housing inflation, which accounted for the main factors of last month's CPI increase, are likely to decline. Specifically, housing inflation has benefited from a decline in rents for newly contracted housing and an empirical analysis by OER. Energy prices still have room to fall due to the improvement on the supply side. Finally, the CPI inflation report is expected to exceed market expectations tomorrow, driven by the downward trend in new and used car prices.

In the current environment, although the mainstream expectation of the market is still dominated by "postponing rate cuts", there are still views of no cut rates this year, or even rate hikes. The divergent views of Fed officials on the progress of inflation are the reason for this phenomenon.

Michelle Bowman and Neel Kashkari are hawkish and believe that there may not be a rate cut this year. Bowman is the first official, after Kashkari, to claim no rates cut this year. However, other officials seem to be optimistic about inflation. Austan Goolsbee and Thomas Barkin believe inflation will come down, while Lorie Logan and Jerome Powell indicate will be delayed this year, but not without them.

The words of Vice Chairman Philip Jefferson have proved this well. "The potential for misunderstanding in the market is especially high when policymakers are speaking at the same time with different opinions," he said. Therefore, this CPI may contribute to the unification of market expectations.

So far, according to the CME FedWatch data, the probability of a rate cut in September is 62.7%.

US April CPI Outlook: Inflation Expected to Decline Beyond Forecasts_4

Since the March CPI inflation report weighed on interest rate cut expectations, market rate cut expectations have been pushed from June to November, but the non-farm payrolls report has boosted it to September. Just a month ago, the market was pricing in a 56.8% probability of a June rate cut, but now there are only 3.5% left for it. Therefore, it can be concluded that a rate cut in June is unlikely. If the CPI shows that inflation continues to rebound, the timing of a rate cut will be further postponed. Conversely, the market may re-advance bets on the Fed's first rate cut to September, or even July.

At present, the market is pricing in one or two rate cuts this year. The data performance may have an impact on the strength of the Fed's internal forces, which in turn will affect the market's risk appetite.

Risk Warnings and Disclaimers

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Samantha Luan

Economic

Central Bank

Summary:

Federal Reserve Chair Jerome Powell said Tuesday that the central bank is unlikely to raise its key interest rate in response to signs of stubborn inflation and underscored his view that price increases would soon start to cool again.

Yet Powell, during a panel discussion in Amsterdam, said his confidence that inflation will ease “is not as high as it was” because price increases have been persistently hot in the first three months of this year. Powell stressed that the Fed's preferred approach was to keep its benchmark rate at its current two-decade peak rather than increase it.

“I don't think that it's likely, based on the data that we have, that the next move that we make would be a rate hike,” Powell said. “I think it's more likely that we'll be at a place where we hold the policy rate where it is.”

Financial markets and economists have been hoping for signs that one or two Fed rate cuts might be coming this year, given that inflation is down sharply from its high in 2022. But with price pressures still elevated, Powell and other Fed officials have signaled that no rate cut is likely anytime soon.

Powell spoke hours after a report on U.S. producer prices showed that wholesale inflation picked up in April. On Wednesday, the government will issue the latest monthly report on consumer inflation, which is expected to show that price growth cooled a bit last month.

In his remarks Tuesday, Powell downplayed the wholesale price report, which also showed that some costs cooled last month, including for airfares, hospital visits and car insurance.

“I wouldn't call it hot,” he said of the wholesale inflation data. “I would call it sort of mixed.”

Economists are divided over whether the high inflation figures this year reflect a re-acceleration in price growth or are largely echoes of pandemic distortions. Auto insurance, for example, has soared 22% from a year ago, but that surge may reflect factors specific to the auto industry: New car prices jumped during the pandemic, and insurance companies are now seeking to offset the higher repair and replacement costs by raising their premiums.

Other economists point to consistent consumer spending on restaurant meals, travel and entertainment, categories where in some cases price increases have also been elevated, possibly reflecting strong demand.

Powell said that upcoming inflation reports will reveal whether such factors are keeping inflation high or whether inflation will soon fall back to the Fed's 2% target, as he said he expects. Inflation, which peaked at 9.1% in the summer of 2022, is forecast to slow to 3.4% in Wednesday's latest report.

The Fed chair noted that rising rents are one key factor keeping inflation high. He called that “a bit of a puzzle” because measures of new apartment leases show new rents barely increasing. Such weaker data has apparently yet to flow into the government's measures, which cover all rents, including for tenants who renew their leases. Though rents are still growing faster for tenants who renew leases, Powell said the government's measures should eventually show rent growth easing.

The Fed chair also acknowledged that the economy “is different this time” because so many Americans refinanced their mortgages at very low rates before the Fed began raising borrowing costs in March 2022. Many large businesses also locked in low rates at that time.

“It may be,” he said, that the Fed's rate policy “is hitting the economy not quite as strongly as it would have if those two things were not the case.”

Last week, Fed officials underscored that they were prepared to leave their key interest rate at 5.3%, the highest level in 23 years, as long as needed quell inflation.

Source: Fortune

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FastBull Featured

Data Interpretation

Summary:

Inflationary pressures have eased, and the steady fall in inflation has boosted expectations for a rate cut in June.

On May 15, local time, the French National Institute of Statistics and Economic Studies released the April CPI inflation report as follows.

France's April CPI rose 2.2% year-on-year, slightly lower than the previous 2.3%, and it increased by 0.5% month-on-month, above the previous 0.2%.

France's core CPI (excluding food and energy prices) rose by 1.9% year-on-year in April, lower than the previous 2.2%.

Food prices rose 1.2% year-on-year in April, lower than the previous reading of 1.7%, marking the 13th consecutive month of slowdown; manufactured product prices fell by 0.1% year-on-year, lower than the previous 0.1%;

Service prices rose by 3% year-on-year, the same as the previous reading. The main reason for the stubborn services inflation was the significant increase in housing costs by 2.8% in April, compared with the previous 2.7%, and the rise in insurance services by 8.6%, compared with the previous 5.5%.

Energy prices rose 3.8% year-over-year, up from 3.4% previously; they fell 0.3% from a month earlier. The accelerated year-on-year rise was due to slower declines in the prices of diesel (-0.8% in April vs. -2.3% a month ago) and gasoline (-0.9% in April vs. -2% a month ago).

The April CPI report showed that inflationary pressures continued to ease in France, in line with market expectations, setting the foundation for the European Central Bank to cut rates in June. Once again, it proves that Eurozone countries are making progress in the fight against inflation more visibly than other economies such as the US.

Bank of France Governor François Villeroy has previously stated that "inflation is moving towards the ECB's 2% target and we should be able to start cutting rates in early June."

France April CPI

Risk Warnings and Disclaimers

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Alex

Economic

Summary:

The US economy and stock market are on a clear path to recession, Paul Dietrich said...

The US economy and stock market are on a clear path to recession, Paul Dietrich said. The B. Riley Wealth strategist pointed to a handful of warning signs that suggest a coming downturn.The final blow to the economy could be the US pulling back on stimulus spending, he said.

There's a large number of warnings flashing for the US that suggest the economy is on a nearly certain path to recession, B. Riley Wealth Management's chief investment strategist, Paul Dietrich, said.

Dietrich, a Wall Street vet who was among the observers who called the 2008 recession, has been warning for months of another downturn coming for the US. In a recent note, he pointed to a cluster of warning signs in the economy, such as hotter-than-expected inflation throughout the first quarter and greater volatility in the market. Stocks and bonds have seen muted gains this spring, while oil and gold, which typically perform well in inflationary environments, are rising, Dietrich noted.

Economic growth is also starting to slow, with GDP rising 1.6% over the first quarter, down from 3.4% in the final quarter of 2024. Consumer confidence is also "plummeting," Dietrich said, while job growth has slowed, with the unemployment rate recently touching its highest level in two years.

Meanwhile, yields on US Treasurys are nearly four times the yield of S&P 500 dividends — a sign investors are anticipating interest rates to stay higher for longer. That's the highest Treasury yields have been since 2001 and only the second time in the past 100 years that yields have been that high.

"The economy and the stock market have never seen anything like this in history," Dietrich said. "Everything reminds me of the Dot-com bubble in 2001-2002."

He speculated that the next recession had been postponed by the trillions of dollars of stimulus spent during the pandemic, though the economy is still on track for a downturn. Once that support stops, that could be the "final blow" to stocks, which look propped up by "investor overconfidence" and "a complete disconnect from any company fundamentals," he added.

"Since the current deficit spending is unsustainable, it will end at some point. When it does, the effect will be brutal for jobs, the economy, and the global stock markets," Dietrich said.

Dietrich is among the most bearish forecasters this year, even as calls for a recession have eased and observers say a coming downturn is likely to be short-lived. Previously, Dietrich said stocks could crash as much as 44% as the US economy weakened, even if the recession turned out to be mild.

Source: Business Insider

Risk Warnings and Disclaimers

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Warren Takunda

Economic

Forex

Summary:

The Pound to Euro exchange rate is a 'sell' recommendation with some strategists and will unlikely regain its 2024 highs as the Bank of England sharpens the knife for a June interest rate cut.

Investors see the odds of a June cut at just over 50%, meaning it is still not fully expected. This leaves scope for further adjustment in the coming weeks, which will weaken the Pound Sterling.

By contrast, the market is fully priced for the European Central Bank to cut in June, ensuring the Euro is relatively insulated from the eventual move. This leaves the Pound as the moving piece in the GBP/EUR outlook puzzle.

"We are recommending a new long EUR/GBP trade idea to reflect our view that risks are tilted to the downside for the GBP in the near-term," says Derek Halpenny, Head of Research for Global Markets EMEA at MUFG Bank. "We continue to see room for the UK rate market to price in more than two rate cuts from the BoE this year."

Last week's Bank of England policy update delivered a dovish policy signal as Dave Ramsden joined Swati Dhingra in arguing for an immediate 25 basis point cut.

"Ramsden has a history of leading the way in voting for a change in policy as he was one of the two dissenters who started voting for a hike in November 2021," says Halpenny.

Huw Pill, a key player on the MPC, signalled on Tuesday he might be ready to join Ramsden in voting for a cut at the next meeting. Pill told an ICEAW conference that an interest rate cut this summer was likely and that the Bank could cut rates before inflation had fallen comfortably back to the 2.0% target.

"It's important to recognise we can cut bank rate, while still leaving some restriction in the system," he said. This indicates the Bank believes the data does not necessarily have to be unambiguously supportive of rate cuts in order to trigger a first move.

The Bank last week downgraded its inflation forecasts and sees headline inflation comfortably below 2.0% in the medium term based on an assumption that it will cut rates twice before year-end. This means it believes it can cut twice without compromising inflation's descent to below the 2.0% target.

"We still expect an earlier BoE rate cut in June than the market is expecting for a cut in August or September," says Halpenny.

MUFG targets a move in Euro-Pound to 0.87, which gives a Pound-Euro target of 1.15.

Pound to Euro Rate Might Struggle to Regain its 2024 Highs_1

Above: GBP/EUR daily.

Another downside risk for the Pound would involve the market upping the total number of cuts it expects from the Bank over 2024 (currently two are expected) and 2025. The more a central bank cuts relative to others, the more its currency will be penalised.

"The Bank will first cut rates at the next meeting in June and that, due to inflation falling to only 1.0% later this year, the Bank will reduce rates to 3.00% next year rather than to 3.75-4.00% as currently expected by investors," says Paul Dales, Chief UK Economist at Capital Economics.

Governor Andrew Bailey told reporters last week that UK interest rates would need to be cut by more than the two 25bps cuts the market currently expects.

"A fall in headline inflation to below 2% in the spring, a further deterioration of the labour market and subdued GDP growth is likely to see the MPC cut fairly quickly once it starts," says Daniel Vernazza, Chief International Economist at UniCredit. Pound to Euro Rate Might Struggle to Regain its 2024 Highs_2

Pound to Euro Rate Might Struggle to Regain its 2024 Highs_2

Above: The Bank of England's forecasts show it believes it can cut rates and still achieve its 2.0% inflation target.

However, economists at ING Bank say they still prefer August as a starting date for the Bank's rate cutting cycle, with economist James Smith saying last week's Bank of England meeting was no smoking gun for a June cut. He concedes a "distinctly more optimistic flair" regarding the inflation outlook means a June cut is still a possibility.

The Bank reiterated in its policy guidance that it will continue to monitor the data before considering a rate cut, and there are no less than two inflation releases before the late-June decision. It would likely take two consecutive upside surprises to push the first cut until August.

An upside surprise in next week's inflation data - particularly the services CPI print - could see recent June rate cut bets unwind somewhat, allowing Pound-Euro to recover back into the middle of the 2024 range which is closer to 1.17.

Source: Poundsterlinglive

Risk Warnings and Disclaimers

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Warren Takunda

Cryptocurrency

At the time of publication, the U.S. high yield rate — which represents the rate of high-yield corporate bonds because of their higher risk of default — is 7.54%, according to YCharts data.

The U.S. high yield B effective yield is currently 7.54%.

Interest rates are perceived as an important indicator for crypto traders, as lowering rates typically leads to less yield for investors in safe-haven securities such as bonds and term deposits.

As a result, more investors turn to riskier assets such as Bitcoin to achieve better returns on investment. Bitcoin could top $100K but only if 'high-yield rate' falls below 7% — Analyst _2

Bitcoin trades at $61,871 at the time of writing, down 5.08% over the past 30 days. Source: CoinMarketCap

Peterson argued that overall markets are generally “flat and volatile” between September and October.

“There is a wildly popular theory that a Fed pivot is good for markets,” he stated in a May 14 post on X.

“Rate cuts generally precede major dips,” he commented on the wider overall market.