Pace of UK Interest Rate Cuts Is Too Rapid, Bank of England Chief Economist Says

Economic

Summary:

Huw Pill says rate cuts could fuel inflation resurgence and urges colleagues to be cautious before making further cuts

The pace of UK interest rate cuts has been “too rapid” at a time when pay packet increases remain strong and could fuel a resurgence in inflation, according to the Bank of England’s chief economist.

Huw Pill said on Tuesday that workers were proving to be more successful than previously thought at boosting wages and this should give policymakers reason to pause before cutting the cost of borrowing again.

However, he added that the path for interest rates remained downward.

Pill voted to keep rates on hold at a meeting of the Bank’s monetary policy committee (MPC) this month when most of the nine-member group voted to cut rates by 0.25 percentage points to 4.25%.

He said the quarterly pace of rate cuts since mid-2024 had been too rapid and his colleagues should be cautious before making further cuts.

Pill was speaking before the release on Wednesday of inflation data for April that is expected to show consumer prices increased sharply, driven in part by higher energy bills.

He added: “I would characterise my May vote as favouring a ‘skip’ within a continuing withdrawal of monetary policy restriction, rather than a halt to the process of withdrawal.

“It should not be seen as favouring a halt to – still less a reversal of – that withdrawal of restriction.”

Financial markets expect two further interest cuts, to 3.75%, by the end of the year as policymakers attempt support the economy during an expected period of “subdued” growth and increase in unemployment.

While the economy grew at the fastest pace in a year in the first three months of the year, at 0.7%, the Bank estimates the underlying growth rate for the rest of the year is just 0.1% in each quarter.

Recent PAYE data has emphasised the UK economy’s weakness with employers laying off workers in each of the last three months, which economists have said was in response to higher taxes and rising global uncertainty after Donald Trump’s tariff war.

The Bank’s governor, Andrew Bailey, has said inflation was unlikely to have longer-lasting effects on pricing behaviour, and two members of the MPC voted for a half point cut in rates at the last meeting, citing the potential long term damage to the economy from high interest rates.

However, Pill said he was concerned that the structure of the UK labour market was becoming less flexible, giving employees the power to maintain their living standards through higher pay.

He said services companies were continuing to award large pay rises, slowing the fall in wage growth.

“I remain concerned that structural changes in the price and wage setting behaviour have increased the intrinsic persistence of the UK inflation process. That not only makes inflation higher for longer in the aftermath of pandemic and invasion-induced inflationary shocks than would otherwise have been the case. It also influences the appropriate Bank response in pursuit of lasting achievement of the inflation target,” he added.

Source: Theguardian

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Michelle

Commodity

U.S. energy consumption will grow this year, the U.S. Energy Information Administration (EIA) projected in its latest short term energy outlook (STEO), which was released on May 6.

In that STEO, the EIA forecast that total U.S. energy consumption will come in at 95.42 quadrillion British thermal units in 2025. Total U.S. energy consumption was 94.21 quadrillion British thermal units last year, the EIA’s latest STEO highlighted.

In its previous STEO, which was released in April, the EIA projected that total U.S. energy consumption would hit 95.28 quadrillion British thermal units this year. That STEO pointed out that total U.S. energy consumption was 94.20 quadrillion British thermal units in 2024.

U.S. energy consumption will grow this year, the U.S. Energy Information Administration projected in its latest short term energy outlook.

The EIA’s May STEO forecast that total U.S. energy demand will come in at 22.16 quadrillion British thermal units in the second quarter of this year, 23.95 quadrillion British thermal units in the third quarter, and 24.01 quadrillion British thermal units in the fourth quarter. This STEO highlighted that total U.S. energy consumption was 25.30 quadrillion British thermal units in the first quarter of 2025.

In its previous April STEO, the EIA saw total U.S. energy consumption hitting 22.17 quadrillion British thermal units in the second quarter of 2025, 23.86 quadrillion British thermal units in the third quarter, and 23.95 quadrillion British thermal units in the fourth quarter. That STEO pointed out that total U.S. energy demand was 25.29 quadrillion British thermal units in the first quarter of this year.

USA Liquid Fuels and Gas Demand

The EIA’s May STEO projects that U.S. liquid fuels demand and U.S. natural gas demand will both rise in 2025.

In this STEO, the EIA revealed that it sees U.S. liquid fuels demand averaging 20.50 million barrels per day this year. The STEO highlighted that U.S. liquid fuels demand averaged 20.31 million barrels per day in 2024.

The EIA’s latest STEO projected that U.S. liquid fuels consumption will average 20.49 million barrels per day in the second quarter of this year, 20.67 million barrels per day in the third quarter, and 20.48 million barrels per day in the fourth quarter. The May STEO pointed out that this demand averaged 20.36 million barrels per day in the first quarter.

U.S. natural gas demand is expected to average 91.3 billion cubic feet per day this year, the EIA’s May STEO outlined. It came in at 90.5 billion cubic feet per day last year, the STEO highlighted.

The EIA sees U.S. natural gas consumption averaging 76.4 billion cubic feet per day in the second quarter, 84.7 billion cubic feet per day in the third quarter, and 93.9 billion cubic feet in the fourth quarter. In the first quarter, this demand averaged 110.4 billion cubic feet per day, the STEO showed.

Previous Projections

In its April STEO, the EIA projected that U.S. liquid fuels demand would average 20.38 million barrels per day in 2025. This STEO also highlighted that U.S. liquid fuels demand averaged 20.31 million barrels per day in 2024.

The EIA’s April STEO forecast that U.S. liquid fuels consumption would average 20.36 million barrels per day in the second quarter of this year, 20.48 million barrels per day in the third quarter, and 20.31 million barrels per day in the fourth quarter. The April STEO pointed out that this demand averaged 20.38 million barrels per day in the first quarter.

U.S. natural gas demand was expected to come in at 91.2 billion cubic feet per day this year in the EIA’s previous STEO, which also highlighted that this consumption came in at 90.5 billion cubic feet per day in 2024.

In its April STEO, the EIA saw U.S. natural gas consumption averaging 77.2 billion cubic feet per day in the second quarter, 84.8 billion cubic feet per day in the third quarter, and 93.2 billion cubic feet in the fourth quarter. In the first quarter, this demand averaged 109.9 billion cubic feet per day, that STEO showed.

Source: Rigzone

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Warren Takunda

Economic

The Canadian Dollar looks set to be dragged lower by the decline in the U.S. Dollar.

Losses for CAD and USD at the start of a new week confirm a correlation seen through much of 2025 is still in place between the two North American currencies: the 'sell America' theme has caught the CAD in its net.

The two North American currencies are trending lower as investors see a shift away from American exceptionalism, driven by policy uncertainty, tariffs and burgeoning debt.

With tariff fears receding, it is the ballooning U.S. debt pile that has captured the market's attention as the Republican Party pushes through a multi-year spending bill through Congress, and Moody's downgrades its credit rating on U.S. debt.

The developments weakened the U.S. Dollar, as well as the Canadian Dollar, which lost value against its global peers in response.

In fact, a look at the CAD/GBP exchange rate, with the Dollar index alongside, confirms a correlation that suggests further CAD weakness is to be expected if the USD falls further. Canadian Dollar to Be Dragged Down by USD_1

Canadian Dollar to Be Dragged Down by USD_1

"Despite a somewhat brighter US outlook, we still expect the Dollar to weaken," says a note from Goldman Sachs.

"We see another 5% move lower in the USD in H2," says Mark McCormick, Head of FX and EM Strategy at Canada's TD Bank.

The Canadian economy is closely aligned and integrated with the U.S. economy, meaning any slowdown in the U.S. will weigh on Canada.

Although the worst of the tariff phase has passed, economists agree that the impact of higher import prices will be felt in the coming weeks and months.

"While we have modestly lowered our tariff rate assumptions with a commensurate decline in recession risks, they are still settling in a much more protectionist area than our assumptions from a few months ago," says Goldman Sachs.

In addition, Canada's unemployment rate is far higher than that of the U.S., and inflation is more subdued, meaning the Bank of Canada has more leeway to cut interest rates in response to a slowdown.

This idiosyncratic weakness, combined with a USD proxy status, bodes for further CAD weakness.

Source: Poundsterlinglive

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Adam

Stocks

Moody’s downgrade fails to register

US stocks shrugged off the downgrade of US government debt by the Moody’s ratings agency. Many might be surprised by this, but then Moody’s is the third of the three big agencies to downgrade the US, and comes far behind the other two in terms of its timing.

The downgrade provided no new information on the US debt situation, merely underlining the existing picture. As such, the news had little impact and US markets clawed back their opening losses.

The rally in global markets continues, with the DAX 40 hitting a fresh record high and the Hang Seng bolstered by news of cuts to loan rates by the Chinese central bank. Even a warning by JPMorgan CEO Jamie Dimon failed to have much impact. Dimon said that the market continues to reflect ‘an extraordinary amount of complacency’ around the impact of tariffs.

The JPMorgan CEO may well be right. He is not a man given to making pronouncements with no backing. Even at reduced levels, tariffs on goods coming in to the US are roughly seven times the level at the beginning of Trump’s term.

It still seems very unlikely that the US and global economy can get through the next few months without a notable deterioration in the data. The rebound in equity markets, particularly outside the US, means that stocks are pricing in a much more optimistic outlook than was the case in early April. The global economy may weather this potential rough patch relatively well, but it is far from certain.

Of course, this does not mean that that stock markets will retest April’s lows. The sheer scale of the recovery from April appears to argue against that. Nonetheless, Dimon’s warning remains pertinent, and investors cannot become too complacent right now.

UK stock news – Greggs soars, Vodafone higher

It continues to be a busy week for UK company reporting. Star of the day has been Greggs, which has soared after its trading update this morning. Signs of diversification in its product line have provided the market was looking for, since the shares remain cheap looking at their PE ratio compared to the two-year average.

FTSE 100 telecoms titan Vodafone continues to enjoy a rebound, and this morning’s update is further evidence that a real turnaround is in play. Vodafone’s attraction for many continues to be the chunky dividend, and it is still too early to say that a reliable uptrend is in place for the share price.

Lloyds continues to be one of the standout performers on the FTSE 100, up 40% so far this year. This is a remarkable recovery for such a key stock for many investors. With no US exposure it offers a haven from much of the recent volatility, and is making strides in its financial advice business and in providing loans to smaller businesses. At 77p, the share price sits at levels not seen since late 2015.

source : ig

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Glendon

Economic

Forex

China’s fiscal stimulus pushed its four-month budget deficit to a record high, as the government ramped up support for the economy during an escalation in its trade conflict with the US.

The broad deficit reached 2.65 trillion yuan ($367 billion) in January-April, the most ever for the period, according to Bloomberg calculations based on data released by the Finance Ministry on Tuesday. The shortfall swelled by more than 50% compared with a year earlier.

It’s the clearest evidence yet that Beijing shifted into a higher gear in deploying this year’s planned fiscal stimulus to help the economy weather external shocks. US tariffs on most Chinese goods rose to a prohibitively high level of 145% in April before the two countries agreed to a truce earlier this month.

Outlays soared against the backdrop of stabilizing earnings. Total income in China’s two main fiscal books reached 9.32 trillion yuan in January-April, a decline of only 1.3% year-on-year after a much steeper drop during the first quarter.

Total expenditure rose 7.2% to 11.97 trillion yuan, the data showed. That number combines spending under the general budget, which includes mainly everyday outlays, with expenditure in the government fund budget, which is more weighted toward capital investment projects.

Looking ahead, the urgency of further fiscal support is waning after an agreement by China and the US to temporarily lower tariffs levied against each other’s products.

The truce, along with decent economic activity numbers for April, has led a few major international banks to raise their forecasts for China’s growth this year and dial back expectations of additional stimulus by the government.

Tuesday’s fiscal figures have given them more reasons to bet on the government delaying new supportive measures.

“Government spending was accelerating while revenue shows signs of stabilization,” said Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group. “The need for expanding fiscal deficit in the middle of the year has declined.”

Source: Bloomberg Europe

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Adam

Commodity

Crude Oil Dips as Traders Eye Technical Triggers and Iran Deal Uncertainty

Daily Light Crude Oil Futures

Light crude oil futures edged lower Tuesday as the market lingered in a tight range, awaiting a clear catalyst to drive a decisive move.

Traders are closely watching the $63.10 level—the 50-day moving average—for a breakout that could lead to a swift test of resistance at $63.43 and $64.40, with the 200-day average looming at $66.96. On the downside, a drop below the pivot at $62.59 could spark selling toward $59.13.

OPEC+ Supply Constraints Hold Despite Russia-Ukraine Ceasefire Talks

A potential ceasefire between Russia and Ukraine remains a headline driver, but analysts caution against assuming near-term impacts on oil flows. Even if peace negotiations progress, Russia’s OPEC+ obligations continue to restrict production, muting any immediate supply boost. While President Putin signaled openness to talks, U.S. President Donald Trump has refrained from fresh sanctions on Moscow, softening geopolitical risk premiums but offering no real supply clarity.

US-Iran Nuclear Talks Pose Key Risk to Oil Prices Forecast

The possibility of renewed Iranian oil supply remains a bearish overhang. Iran’s Supreme Leader Ayatollah Khamenei voiced skepticism over ongoing nuclear talks, but any progress could eventually bring 300,000 to 400,000 barrels per day back to the market, according to StoneX. Traders are watching for signs of a breakthrough, as sanctions relief would shift the supply balance and weigh on oil prices projections.

China Demand Concerns Cap Upside Despite Tariff Truce

Soft economic data from China further pressured crude sentiment. Industrial output and retail sales came in weaker than expected, raising concerns over fuel demand from the world’s largest crude importer. However, some traders remain cautiously optimistic following a 90-day tariff pause between the U.S. and China and signs of improving trade flows. Goldman Sachs highlighted a late uptick in Chinese activity, which may offset some demand fears.

Crude Oil Market Outlook: Bearish Bias Without Fresh Catalysts

In the absence of a clear resolution on Iran or a material shift in Russia’s export stance, oil remains in technical limbo. Weak Chinese demand signals and lack of conviction on U.S.-Iran progress lean bearish, especially if prices breach $62.59 support.

A breakout above $63.10 could shift momentum, but until then, crude prices are likely to remain rangebound with downside risk prevailing.

Source: fxempire

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Warren Takunda

Economic

Trade-related uncertainties, ballooning fiscal debt and weakened confidence about enduring U.S. exceptionalism have weighed on U.S. assets, with the dollar one casualty. Investors see the currency losing more of its luster as the greenback comes back to earth from lofty valuations.

The Trump administration's tariffs salvo this year prompted investors to cut exposure to U.S. assets after a long period of overperformance. While the U.S. currency steadied somewhat in recent sessions as investors took heart from a truce in the ongoing U.S.-China trade war, it came under renewed selling pressure after ratings agency Moody's cut the United States' pristine sovereign credit rating by one notch.

"There's plenty of room for further depreciation, purely from a valuation perspective," said George Vessey, lead FX and macro strategist at payments firm Convera. The "sell America" trade was back in focus after Moody's U.S. credit downgrade, he said.

The U.S. dollar index has tumbled as much as 10.6% from its January highs, one of the sharpest retreats for a three-month period, leaving speculators net short the dollar to the tune of $17.32 billion, close to the most bearish position on the buck since July 2023, according to CFTC data.

Part of the bearishness around the dollar has been due to the currency trading at a relatively rich valuation - in January trading as high as 22% above its 20-year average of 90.1 on the dollar index. Currently, the index is hovering about 10% above its 20-year average level.

There is room for it to weaken significantly further, for example another 10% slide would take it to the lows touched during President Donald Trump's first term.

LONG-TERM CONCERNS

Investors and strategists have viewed the dollar as overvalued for years but betting against the currency has proved painful time and again, as the U.S. economy powered on. That could be about to change.

Steve Englander, head of global G10 FX Research at Standard Chartered in New York, said that while recent trade arrangements might calm markets some, they do not address long-term confidence issues facing the U.S.

"The dollar weakness story is not over," said Englander.

Investors are also concerned about the long-term fiscal picture for the United States. Analysts say Trump's sweeping tax-cut bill would add $3 trillion to $5 trillion to the nation's $36.2 trillion in debt over the next decade.

"The combination of diminished appetite to buy U.S. assets and the rigidity of a U.S. fiscal process that locks in very high deficits is what is making the market very nervous," George Saravelos, global head of FX research at Deutsche Bank, said in a note.

The Trump administration has said it backs a strong-dollar policy.

"President Trump has been unequivocally clear about maintaining the strength and power of the U.S. dollar as the world’s reserve currency," White House spokesperson Kush Desai said.

FOREIGN HOLDINGS

Despite recent foreign selling, years of U.S. asset appreciation mean the world still holds trillions in U.S. equities and Treasuries.

Such selling pressure could come from various corners of the globe as more people zero in on the dollar's recent failure to act as a haven, investors said.

"That's really what gave people a jolt ... and say ‘Well, if the dollar is no longer acting as a safe-haven currency, if it's not diversifying us any longer, should we really be holding this much of it?'" said Peter Vassallo, FX portfolio manager at BNP Paribas Asset Management.

Colin Graham, head of multi-asset strategies at Robeco in London, however, said that while there had been a rebalancing of portfolios where people wanted to cut risk, "it hasn't turned into people selling dollars, assets or equities or Treasuries to repatriate yet." That could still follow, he said.

UNHEDGED RISK

The dollar's strength over the last decade had let market participants hold U.S. assets without worrying too much about currency risk.

With foreign holdings of U.S. assets in trillions of dollars, per estimates from banks, including Deutsche Bank, even a modest rise in hedge ratios - the portion of foreign currency exposure that is protected - could spell significant selling.

Increased hedging by investors means less direct demand for the dollar and more dollar selling pressure in the forward markets.

Asian economies including China, South Korea, Singapore and Taiwan have accumulated massive USD exposure as a result of a decades-long trend of investing big trade surpluses in U.S. assets.

An unprecedented two-day surge in Taiwan's currency in early May showed investors how a scramble out of the U.S. dollar could roil markets.

Eurizon SLJ Capital's Stephen Jen and Joana Freire said in a note in early May that USD hoardings of about $2.5 trillion by Asian exporters and institutional investors "pose sharp downside risks to the dollar vis-à-vis these Asian currencies."

One counter-argument to the bearish dollar story, however, is the resilience of the U.S. economy.

Should economic growth surprise on the upside, it could keep the U.S. Federal Reserve on hold for longer and support the buck.

Jack McIntyre, portfolio manager at Brandywine Global, noted that U.S. consumers have remained resilient so far in the face of bets on weakness. Still, he and others were more inclined to sell rallies in the dollar than bet on a rebound.

"The story is more kind of looking for opportunities to sell dollars on strength right now," McIntyre said.

Source: Reuters

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