inflation forecasts

FX Daily: Markets steady ahead of final push on the debt deal After a long weekend in many parts of the world, FX markets are returning to mull progress on a US debt ceiling deal. This now has to pass the committee stage in the House and will probably go to a House vote tomorrow. Progress on the deal will allow investors to focus on sticky US inflation – likely seeing the dollar hold onto recent gains.   USD: Progress on debt deal allows markets to focus on another Fed hike After long weekends in many parts of the world, FX markets are returning to some progress on the US debt ceiling. President Joe Biden and House Speaker Kevin McCarthy have reached a two-year deal. That deal will be assessed by the House Rules Committee today and, if approved, will likely go to a vote in the House tomorrow. Both Democrat and Republican leaders feel they have the votes to get the deal through Congress – although at times like these, there may be a few holdout politicians who like their day in the sun.   Progress on the debt deal has seen some declines in yields for US Treasury Bills maturing in June, although it has had little impact on FX markets. We said last week that FX markets had already been trading in a de-stressed fashion on the assumption a deal would go through. Assuming there are no hiccups in the deal's passage, FX markets can return to the most pressing issue of sticky inflation and what central bankers plan to do about it.   Last Friday's US data set made the firm case for one additional 25bp Fed hike – now fully priced by the time of the 26 July meeting. Money markets price a 63% chance of that hike coming earlier at the 14 June meeting – a meeting which will likely see the Fed have to raise its inflation forecasts. The default view, therefore, seems to be that the dollar can hold its recent gains at least into that June meeting. That is unless US price and activity data start to fall away sharply.   On that front, this week sees US JOLTS job opening data (Wed), ADP (Thurs.), and the May NFP (Friday). Barring any major downside miss in these releases, it looks like the market will support another 25bp hike from the Fed, continued inversion in the US yield curve, and a strong/stronger dollar.   DXY looks comfortable above 104.00 and could extend recent gains to 104.65 or even 105.30 this week.    

ECB Preview: Don’t look back in anger A 25bp rate hike looks like a done deal for next week’s European Central Bank meeting. However, with growth disappointing, the economic outlook getting gloomier and inflation dropping, arguments for several more rate hikes are becoming weaker. That said, the ECB is likely to ignore this.   Macro developments since the May meeting have clearly had more to offer the doves than the hawks at the ECB. Headline inflation has continued to come down but remains far off 2%, survey-based inflation expectations have also started to slow, growth has disappointed and confidence indicators seem to have peaked. In previous times, such a backdrop would have been enough for the ECB to consider pausing rate hikes and wait for the effects of the rate hikes so far to fully unfold. However, the ECB is fully determined right now to err on the side of higher rates.   Minutes of May meeting point to ongoing tightening bias This tightening bias was also reflected in the minutes of the ECB’s May meeting. The surprisingly weak Bank Lending Survey ahead of the last meeting clearly scared some ECB members enough to slow the pace of rate hikes but not enough to start thinking about an end to, or at least a pause in, the hiking cycle. In fact, a large number of ECB members assessed the risks to price stability as being clearly tilted to the upside over the policy-relevant horizon.   High underlying inflation and stubbornly high core inflation were the main reasons behind the ECB’s view that the conditions were not in place to “declare victory” or to be complacent about the inflation outlook.     Staff projections won't bring substantial change Next week’s meeting will also bring a new round of ECB staff projections. While gas prices have dropped further since the last projections in May, oil prices are broadly back at where they were in March. Market interest rates have also hardly changed and only the slightly weaker euro could technically add some inflationary pressure. At the same time, however, it will be interesting to see how the ECB is dealing with the disappointing soft and hard macro data of late.   Remember that back in March, the ECB expected eurozone GDP growth to return to its potential quarterly growth rate of 0.4% quarter-on-quarter from the third quarter of 2022 onwards. This was a surprising forecast given the delayed adverse impact from monetary policy tightening and ongoing structural transitions. It was also remarkable as at the same time, inflation was forecast to return to 2% by the end of 2025. An economy growing at full speed which also gradually allows inflation to disappear is a very unlikely phenomenon.     For next week, we expect slight downward revisions to the ECB’s GDP growth forecasts for this year and next but hardly any revisions to the inflation forecasts. This would mean that the ECB sticks to the 2025 forecast of 2.1% for headline and 2.2% for core inflation.     Hiking will continue, and not only next week Despite the recent decreases, actual headline and core inflation and expectations for inflation only to return to target in two years from now are clear arguments for the ECB to not only continue hiking by 25bp next week but to also keep the door open for rate hikes beyond then.   However, the eurozone economy has turned out to be less resilient than anticipated a few weeks ago and confidence indicators, with all the caveats currently attached to them, point to a weakening of growth momentum again. As headline inflation is gradually retreating, the risk increases that any additional rate hike could quickly turn out to be a policy mistake; at least in a few months from now. Still, the ECB simply cannot afford to get it wrong again.     This is why they are putting more than usual emphasis on actual inflation developments. Even if this completely contradicts forward-looking monetary policy, the ECB is in no position to take a chance and is not giving any impression that it might look back in anger.  

While the Fed and ECB sound hawkish, the BoJ continues to remain dovish    While European markets underwent a rather subdued and negative finish yesterday, US markets continued their recent exuberant run, with the S&P500 and Nasdaq 100 both closing higher for the 6th day in a row. This was a little surprising given that the Federal Reserve and the European Central Bank both delivered very hawkish outcomes in the space of 24 hours of each other, as well as painting very cautious outlooks for growth and inflation over the course of the next 12 months. While the Federal Reserve kept rates unchanged, they upgraded their terminal rate forecast for this year by indicating that they expected to deliver another 2 rate hikes by the end of this year. This was a little surprising even with the fact that the labour market continues to exhibit significant tightness.     This is because a lot of the main inflation indicators, particularly the forward-looking ones, are showing increasing evidence of disinflation. If they are showing these signs now then the signs will be much more evident in the next few weeks, which means that for all the Fed's jawboning today its highly unlikely they will be able to follow through on it.     Quite simply markets aren't buying it with US 2-year yields below the levels they were prior to Wednesday's Fed meeting. In essence the market thinks the Fed is done as far as rate hikes are concerned.     Yesterday's economic data also cast doubt on the Fed's forward guidance for rates this year with US import prices for May plunging by -5.9% year on year, close to levels last seen in April 2020. Export prices on the other hand fell even more sharply, falling to a record low of -10.1%   While the ECB did deliver a rate hike, they also revised upwards their core inflation forecasts for this year from 4.6% to 5.1%, which was quite punchy given that core inflation has already fallen back to 5.3% in this month's flash numbers, down from 5.6% in April, and just below the record high of 5.7% set in March. This core number is expected to be confirmed in data scheduled to be released later this morning.   ECB President Christine Lagarde even went as far as more or less pre-committing to another 25bps rate hike in July, which in turn helped to push European yields sharply higher. They may well be able to deliver on this, however there is room for scepticism when it comes to any rate moves beyond that.   This is because their core inflation expectations for the end of this year come across as way too high. Does anyone at the ECB seriously believe that core prices won't have fallen below 5% from where they are now by the end of this year, when producer price inflation is already slowing sharply. If they do, they need to have another look at their economic models.   This morning the Bank of Japan delivered their own assessment of the outlook for the Japanese economy, with traders and investors increasingly scratching their heads as to why new Bank of Japan governor Kazuo Ueda seems so reluctant to even consider starting to look at paring back their own easy monetary policy, when core CPI is at 4.1% and the highest level since the 1980's. The BoJ seems to be of the opinion that current levels of core inflation aren't sustainable and that prices will fall back towards 3.5%, before accelerating modestly again.      The central bank is due to update its economic forecasts in July, while Governor Ueda is due to speak in a couple of hours' time when he might offer further insights as to why the Bank of Japan is reluctant to alter its policy settings quite yet.   EUR/USD – pushed above the 50-day SMA at 1.0880, as well as pushing through 1.0920/30 opening the prospect for a return to the April highs at 1.1095. We now have support back at the 1.0820/30 break out level.     GBP/USD – broken above previous highs this year at 1.2680 and kicked on above the 1.2760 area which is 61.8% retracement of the 1.4250/1.0344 down move. This puts us on course for a move towards the 1.3000 area. We now have support at 1.2630.      EUR/GBP – continues to hold above the 0.8530/40 area rallying back to the 0.8600 area before slipping back. The key day reversal from earlier this week is just about still valid, however the lack of a rebound is a concern. A break below 0.8530 targets a move towards 0.8350. Resistance at 0.8620.     USD/JPY – pushed up to 141.50 yesterday, before slipping back, with the next resistance at 142.50 which is 61.8% retracement of the 151.95/127.20 down move. Support now comes in at 140.20/30      FTSE100 is expected to open 7 points higher at 7,635     DAX is expected to open 15 points higher at 16,305     CAC40 is expected to open unchanged at 7,290     By Michael Hewson (Chief Market Analyst at CMC Markets UK)  

Rates Spark: Keeping upward pressure on the front end After the Fed, the ECB has managed to more than live up to the market's hawkish expectations. The central banks have had some success in giving the high-for-longer narrative more traction and providing especially front-end rates more room to rise. Whether the narrative sticks will ultimately depend on the data.   The ECB more than lives up to hawkish expectations The ECB has lived up to the hawkish expectations, especially on the back of having revised up its own inflation forecasts. In the press conference, President Christine Lagarde used the words we have become accustomed to, that “more ground needs to be covered”. And she heavily hinted at another hike in July. The initial reaction to the ECB decision saw a strong bear flattening of the curve. Note that it mainly comes from pricing out 2024 cuts than pricing in a higher terminal rate. That move later faded somewhat, but 2Y Bund yield still ended 10bp higher on the day, while the 10Y yield was up by 5bp and thus stayed shy of its recent highs at 2.55%. The 2s10s curve now stands at close to -63bp, its most inverted since the banking turmoil in March when the curve briefly hit -73bp.   The inversion is reflective of the ECB having to straddle persistently high inflation on the one hand, but also already weakening economic data on the other. The way the ECB deals with it is to focus on the former while being quite optimistic about the latter. That optimistic view on the economy also gives it more room to keep tightening, keeping front-end yields elevated. But the market will have to account for the increasing probability that this narrow focus on current inflation to determine the ECB's success results in a policy error further down the road. Hence the reluctance in longer rates to follow the front end higher. As a final note, the ECB confirmed that APP reinvestments will end in July. Lagarde signalled that ECB was not worried about the declines in excess reserves in the banking system also with the €477bn TLTRO redemption coming up at the end of this month. Today the ECB will also announce any further voluntary TLTRO repayments from banks.   ECB and Fed were successful in curbing rate cut expectations

FX Daily: June tells us the dollar is not the only game in town Despite relatively low levels of volatility, June has so far seen some pretty large spot FX moves in both the G10 and emerging market space. These moves seem to reflect a growing conviction of a soft landing in the global economy and a more hawkish view across the G10 central banks outside of the US. Look out for inflation surveys and central bank speakers today.   USD: Two factors weighing on the dollar We have recently been talking about inverted yield curves and late-cycle dollar strength. Looking at USD/JPY, that seems a fair comment given that it is trading not far from its recent highs and the US 2-10 yield curve is inverting even further (now -94bp) on the back of a hawkish Federal Reserve. However, this month in the G10 space, the dollar is only stronger against the yen and is anywhere from 2% (Swiss franc) to 6% (Australian dollar) weaker against the rest of the G10 currencies. This looks like a function of two factors: The first is the increasing hawkishness shown by the rest of the central banks in the G10 space. Inflation forecasts and expected tightening cycles are being revised higher across the board and in some cases more aggressively than in the US. This includes recent surprise hikes from Australia and Canada, a very hawkish ECB meeting yesterday, and very aggressive expectations for Bank of England rate hikes. The second is the bullish global risk environment. Investors are cutting allocations to cash and look to be putting money to work in bonds, equities and emerging markets. Against all the odds the MSCI world equity index is up 14% year-to-date and fund managers are surprisingly suffering from a Fear Of Missing Out (FOMO) on a good rally in benchmark risk assets. Notably, USD/CNH reversed lower yesterday despite the People's Bank of China rate cut – suggesting that investors are instead more interested in the prospect of upcoming Chinese fiscal stimulus.   Of course, data remain crucially important and will determine whether central banks need to keep rates tighter for longer or can perhaps start to consider rate cuts – as is the case in some parts of Eastern Europe and potentially Latin America too. But that is ING's central call for the second half of the year – that US disinflation will become more evident through the remainder of this year and that a less hawkish Fed will allow the dollar to sell off. Back to the short term, the dollar may well stay soft against most currencies except the Japanese yen, with the Bank of Japan remaining resolutely dovish. Here, yen-funded carry trades will remain popular. For today's data, we have the University of Michigan inflation expectations. This occasionally moves markets and any meaningful drop could nudge the dollar lower. Equally, we have three Fed speakers, generally from the hawkish end of the spectrum.  We think the mood to put money to work probably dominates and barring any big upside surprise in US inflation expectations, DXY can probably edge down to the 102.00 area, if not below.

SNB hikes rates by 25bp and signals further tightening still to come The SNB raised its policy rate by 25 basis points as expected, while at the same time sending out a very hawkish signal. With the central bank expecting inflation to remain persistent for some time, another 25bp move is expected for September.   25bp rate hike as expected As expected, the Swiss National Bank has raised its key interest rate by a further 25 basis points to 1.75%. This brings the total amount of rate hikes in this cycle to 250 basis points in one year, well below the European Central Bank's 400bp and the Federal Reserve's 500bp. At the same time, the SNB continues to intervene in the foreign exchange market by selling currencies, thereby strengthening the Swiss franc and bringing down imported inflation. After years of foreign currency purchases, this reduces the size of the SNB's balance sheet and is therefore a particularly effective form of quantitative tightening against inflation.   Long-term inflation concerns This rate hike comes against a backdrop in which inflation remains above the SNB's inflation target of between 0 and 2% – although it has fallen sharply. It reached 2.2% in May, a steady decline from the 3.4% reached in February 2023. Core inflation fell below 2% to 1.9% in May. Thanks to lower energy prices and the appreciation of the Swiss franc, the SNB expects inflation to continue to fall to 1.7% in the third quarter.   Despite this encouraging decline, the SNB continues to see inflation as a problem and expects it to strengthen over the coming winter due to second-round effects. Inflation is also expected to become increasingly domestic, and therefore less easily combatted by strengthening the exchange rate. Of particular concern is an expected rise in rents, which account for 16% of the consumer basket and are indexed to interest rates in Switzerland.   In light of this situation, the SNB has revised up its inflation forecasts for the next few years and now expects inflation to remain above 2% until the end of the forecast horizon in the first quarter of 2026. It's expected to average 2.2% in 2023, 2.2% in 2024 and 2.1% in 2025. In other words, aside from the fall expected this autumn, the SNB does not expect any moderation in inflationary pressures and believes that the current situation is likely to persist. This signal growing concerns about the long-term outlook for inflation.   Another hike expected in September This upward revision of forecasts is a particularly hawkish signal and suggests that the SNB will raise rates again. President Thomas Jordan almost pre-announced this at the press conference, stating that tighter monetary policy will be necessary to bring down inflation. As a result, we are now expecting another rate hike of 25 basis points in September.   At a time when other central banks seem to have lost confidence in their models and are looking primarily at the actual rate of inflation, the SNB seems to be taking a different approach by focusing primarily on inflation forecasts. The fact that the ECB is likely to be more aggressive than previously expected – probably raising rates again in July and September – should further reinforce the SNB's decision. After September, the SNB rate is likely to remain at 2%, with a rate cut looking unlikely between now and 2026.

Bank of Korea’s hawkish pause extended on slowing inflation As widely expected, the Bank of Korea decided to leave its policy rate at 3.50%. However, the BoK maintained its hawkish stance, seeing the risk of inflation reaccelerating to the 3% range over the coming months.   BoK still concerned about inflation According to the Monetary Policy Decision statement, the BoK reiterated concerns about inflation despite the recent slowdown and estimated core inflation would exceed its current forecast of 3.5% in 2023, while its assessment of growth conditions has improved somewhat from the previous meeting. At the press conference, Governor Rhee Chang-Yong commented that the inflation path going foward is still unclear with several persisting upside risk factors, thus board members kept the door open to the possibility of a rate of 3.75%. The lower-than-expected US inflation report will likely provide some relief for the BoK over its decision in the third quarter. The current situation is somewhat different from last year, when inflation exceeded 6%, forcing the BoK to chase the Federal Reserve's hikes. Given the current 2% range of inflation, we believe that the BoK will pay more attention to domestic economic factors such as inflation, financial market conditions, household debt, the Korean won, and growth conditions rather than the widening rate differential itself.   BoK watch Based on the governor’s comments and the MPC statement, we think the BoK will keep its hawkish stance at least until September. By then, the BoK will have a clearer picture of the inflation path as well as other major central banks' monetary policy. If we are right about inflation forecasts staying in the 2% range throughout the year, the BoK will make its first move to cut in the fourth quarter. With restrictive monetary conditions lasting more than a year, household consumption and investment are likely to be disrupted and signs of credit distortion will grow even more. However, high levels of household debt and the widening gap between the Fed will limit the pace of rate cuts. 

The EUR/USD pair has been caught in turbulence amid conflicting fundamental signals, causing the price to move sideways. Market participants still need to unravel this tangle of contradictions to determine the price's direction. Currently, traders are driven by emotions, experiencing a rollercoaster-like ride. The verdict of the Federal Reserve and the US GDP The results of the Federal Reserve's July meeting were not in favor of the greenback. Bulls returned to the 1.1150 resistance level (the Tenkan-sen line on the 1D chart) and tested it. However, when it comes to the overall outcome, it would be more accurate to say otherwise: the market interpreted the results of the July meeting against the US currency, while the Fed's verdict can be viewed from different angles. The US central bank avoided specifics, especially regarding the future prospects of tightening monetary policy. According to Fed Chair Jerome Powell, everything will depend on what new economic data shows: the September meeting may end with either a rate hike or keeping rates unchanged. Such rhetoric disappointed dollar bulls, as recent inflation reports came out in the "red," reflecting a slowdown in inflation in the US. It is logical to assume that if July's inflation follows the trajectory of June's, the September rate hike will be in question. These conclusions put significant pressure on the greenback – the US dollar index hit a weekly low, declining towards the 100 level. However, the situation changed drastically. Dollar bulls once again saw a "light at the end of the tunnel" thanks to the latest US GDP report. The data significantly surpassed forecasts.   According to preliminary calculations, US GDP increased by 2.4% in the second quarter, with a growth forecast of 1.8%. It is worth mentioning that the first quarter's result was recently revised upwards: the initial estimate showed a 1.3% growth in the US economy, while the final data showed a different result of 2.0%. The Bureau of Economic Analysis report (US Department of Commerce agency) indicates that this growth was driven by increased consumer spending, government and local government spending, growth in non-residential fixed investment, private investment in equipment, and federal government spending. Consumer spending, which accounts for two-thirds of the economy, increased by 1.6% in the second quarter, while government spending increased by 2.6%. EUR/USD sellers are back in action In addition to the GDP report, dollar bulls were also pleasantly surprised by another indicator.   Durable Goods Orders in the US increased 4.7% in June, compared to forecasts of 1.3%. This reading followed the 2.0% increase recorded in May. Orders for durable goods excluding transportation also rose by 0.6% last month. This component of the report also showed a positive outcome, as most experts expected a more modest growth of 0.1%.   As a result, hawkish expectations regarding the Fed's future actions have increased in the market. According to the CME FedWatch Tool, the probability of a 25 basis points rate hike in September is nearly 30%, whereas after the announcement of the July meeting's outcome, this probability fluctuated in the range of 19-20%. Such an information background contributed to the "revival" of the greenback.   The US dollar index fully recovered all lost positions, rising to the middle of the 101 level. Consequently, the EUR/USD pair plummeted and hit two-week price lows.       The European Central Bank also played its role in this. Following the July meeting, the ECB raised interest rates by 25 basis points but did not announce further steps in this direction.   Similar to the Fed, the ECB indicated that one additional rate hike from the central bank would now depend on key economic data, primarily inflation. According to ECB President Christine Lagarde, the central bank has "turned off the autopilot" – decisions on interest rates will be made from meeting to meeting and will be based on "inflation forecasts, economic and financial data, and the underlying inflation dynamics."   It is worth noting that after the previous meeting, Lagarde had directly announced the rate hike at the July meeting. Conclusions The latest US reports, as well as the outcomes of the ECB's July meeting, "redrew" the fundamental picture for the EUR/USD pair. There is one more important piece of the puzzle remaining: the core PCE index, which will be published at the start of the US session on Friday, July 28th. However, for another upward reversal, this indicator must deviate significantly from the forecasted value (naturally, in a downward direction), with experts predicting a declining trend to 4.2% (following the May increase to 4.6%).   From a technical perspective, you can consider short positions on the pair after sellers overcome the support level of 1.0950 (Tenkan-sen line on the weekly chart). In such a case, the next bearish target for EUR/USD would be at 1.0850 – the upper band of the Kumo cloud on the 1D chart.  

Bank of England opts for smaller rate hike after better inflation news The Bank of England is keeping all its options open on future rate hikes, although another rise in September seems highly likely. Whether that's repeated in November is a more open question, particularly if services inflation starts to fall more noticeably between now an.   Bank of England reverts back to a 25bp hike Better news on inflation has, as expected, enabled the Bank of England to pivot back to a 25 basis-point rate hike this month. That follows a more aggressive 50bp hike back in June. Policymakers clearly don’t want to come across as complacent though, and there are plenty of references to the upside risks associated with inflation, as well as the recent surprises in wage growth. We shouldn’t be too surprised then that the Bank isn’t offering up much on what it intends to do next. The BoE retained its forward guidance that says it could hike again if “evidence of more persistent pressures” shows up in the inflation figures. This is the same phrase it has used all year and is sufficiently vague to keep various options on the table for September and beyond. That said, there are a few hints that we might be nearing the top for policy rates. Interestingly, the Bank now formally says that policy is restrictive, which seems to be a new addition to the statement – as is the line about policy needing to stay “sufficiently restrictive for sufficiently long”. At a pinch, you could argue this is the Bank laying very early groundwork for a pause later in the year, though we’re at risk of overanalysing. Meanwhile the new forecasts, even accounting for the Bank’s upside skew that it applies to what its models are churning out, show inflation at (or even a tad below) target in a couple of years’ time. Curiously, that’s also the case under the assumption that Bank Rate stays unchanged at its new level over the coming months. That said, the Bank’s forecasts have been pointing to sub-target inflation for some time now, and policymakers don’t appear to be putting a lot of faith in what their models are currently predicting.   So what next? Another hike in September seems likely, but by November we think the news on services inflation and wage growth should be looking a little better. The former has risen in no small part because of higher energy bills, and, according to ONS surveys, the pressure on service sector companies to aggressively raise prices is abating. Whether or not we get another 25bp hike in November will therefore largely depend on whether services inflation has failed to slow, but our base case for now is that 5.50% in September will mark the peak for Bank Rate. Market pricing of a peak at 5.65% around the turn of the year therefore seems fair – and certainly much more reasonable than it did just a few weeks ago when investors briefly saw peak Bank Rate near 6.5%.   UK markets read the statement on the less hawkish side Today’s MPC statement and accompanying material have seen sterling sell-off around 0.5% and the UK 2-10 year Gilt curve steepen by around 7-8bps, led by declining yields at the short end of the curve. As above, investors seem to have read something in either the statement or the CPI forecasts suggesting that the Bank Rate may not need to be hiked as high as 5.75% after all. As discussed in our BoE preview, we expect the general direction of travel for EUR/GBP to lie towards the 0.88 area later this year as evidence builds that rates may in fact peak at 5.50%. We still like a higher GBP/USD on the back of the softer dollar story – but that does rely on both US inflation and activity showing a marked deceleration over the coming months. We currently see GBP/USD ending the year just above 1.30. Gilt price action today comes amid unsettled conditions at the long end of the US Treasury market.  A steeper curve does seem to make the most sense, if investors do continue to question whether the Bank Rate makes it to 5.75% and also while the US fiscal situation, plus rising Japanese government bond yields, keep the long end of core bond markets under pressure. Currently, we have a year-end 10-year Gilt target of 3.80% – but that requires a lot of things to go right.

The upswing in oil prices made CAD the G10 outperformer in yesterday’s session. USDCAD has room on the downside after the recent run higher but EUR and JPY have more to lose with oil prices rising which brings EURCAD into focus. Also, bets for an ECB rate hike have picked up after a recent Reuters report suggesting inflation forecasts may be adjusted higher, but boost to EUR could remain limited with stagflation concerns rising. CAD: Crude oil prices bring upside in Canadian dollar Crude oil prices extended its gains yesterday after the OPEC monthly report showed the oil market is going to be a lot tighter than initially thought. In its latest monthly outlook, the oil group said the market may experience a shortfall of 3.3mb/d in the fourth quarter of the year. This came in above expectations, and would make it one of the largest deficits in more than a decade. The oil market could get even tighter if the economic data starts to improve for China after a host of stimulus measures announced over the last several weeks. This has led to some analysts expecting $100 oil could be a possibility, despite scope for this artificially created tightness to soften from October when refinery demand for crude oil slows due to maintenance. Still, focus is likely to stay on crude oil for now as 10-month highs have been reached, and this is prompting a recovery in CAD. USDCAD retreated from last week’s highs of 1.3695 to test the short-term support at 0.236 retracement of 1.3553. The price of oil directly influences CAD as oil is one of Canada's major exports. Meanwhile, despite the central bank leaving its interest rate on hold at 5% at the last meeting, a stronger-than-expected jobs report on Friday has boosted the odds of another rate hike later in the year. Headline job gains came in at +39.9k for August vs. expectations of +20k with wages also firmer than expected. While possibility of more rate hikes may be low given Q2 GDP growth was negative, the wage pressures may also prevent the BOC from turning outright dovish anytime soon. This could open up the room for a recovery in CAD after the recent weakness, both from aa run higher in oil prices. Canadian economy also could benefit due to the resilience of the US economy. Meanwhile, USDCAD has rallied from lows of 1.3093 in mid-July to 1.3695 last week so correction may be due. However, worth noting that higher oil prices could also bump up the US inflation outlook once again while strengthening the economic outlook as US is also a net energy exporter. This could mean that King Dollar could continue to reign, and that could restrain oil for now. EUR and JPY could come under pressure with the increase in oil prices for being primarily energy importers.   Market Takeaway: USDCAD has room to retrace recent gains if oil prices continue to surge, but US CPI today could be key. EURCAD may be a more direct oil play as Canada benefits with higher oil prices while Europe stands to lose.  

EUR: High ECB inflation forecasts provide a little support The euro received a little support overnight on a Reuters report that the new European Central Bank staff projections being released tomorrow would forecast CPI above 3% next year, compared to expectations of 2.7%. The implication here is that, based on these forecasts, the ECB would likely be more hawkish and supportive of the euro. As we discuss in our ECB cheat sheet, there are many moving parts to tomorrow's meeting. However, the biggest part should be a 25bp rate hike – which is only 54% priced – and a factor that should see EUR/USD hold support down at 1.0700. Chris Turner    

ECB rate decision expected to be a close call US to release retail sales and producer prices The euro is showing limited movement on Thursday, ahead of today’s ECB rate decision. In the European session, EUR/USD is trading at 1.0736, down 0.06%. Will she or won’t she? All eyes are on ECB President Christine Lagarde, who will decide whether the ECB will increase rates by a quarter-point or hold off and take a pause after nine straight increases. Interest rate futures have priced in a hike at 65% but there is a lot of uncertainty among economists and the decision is expected to be a close call, as the Governing Council appears split on the issue. There are strong arguments on both sides, and Lagarde could end up with a type of compromise that ends up being a ‘hawkish hold’ or a ‘dovish hike’. The latest development was a report in Reuters on Wednesday that the ECB inflation forecasts will be increased at today’s meeting, which raised expectations for a hike. Traders should be prepared for volatility from the euro after the decision, which is a binary risk event for the euro. A rate hike would likely boost the euro while a hold could weigh on the currency. Still, any swings in EUR/USD could be immediate and short-lived. The markets will be paying close attention to the policy statement and whether the Governing Council decision was a close call. It’s a busy day in the US as well, with the release of retail sales and producer prices for August. Retail sales are expected to ease to 0.2% m/m, down from 0.7% m/m, while PPI is forecast to rise to 1.2% y/y, up from 0.8% m/m. The releases could trigger volatility from EUR/USD in the North American session.   The US inflation report on Wednesday was a mix, as headline inflation rose in August from 3.2% to 3.7%, while core CPI eased to 4.3%, down from 4.7%. The jump in headline inflation may have attracted media attention, but the Fed will be pleased with the drop in core CPI, which is a better gauge of underlying inflation. The inflation report has cemented a pause at next week’s meeting, with the future markets pricing in a pause at 97%, up from 93% prior to the inflation release. . EUR/USD Technical EUR/USD is testing resistance at 1.0732. Above, there is resistance at 1.0777 There is support at 1.0654 and 1.060        

RBNZ inflation forecasts still look like a gamble The RBNZ’s latest inflation projections – from the August Monetary Policy Statement – show an optimistic scenario for disinflation, largely based on assumptions about the impact of restrictive monetary policy and slowing domestic as well as external demand. Those assumptions are, however, met with the risks associated with: a) the extra spending deployed by the government from May, b) the recent spike in oil prices, c) residual supply-related inflationary effects of severe weather events, and d) the still unclear impact of booming net migration on wages and prices (easing labour supply, but raising demand for housing and other services). We think that the RBNZ will continue to acknowledge those risks to inflation and strike a generally hawkish tone this week, with the aim of keeping inflation expectations capped. However, a rate hike seems unlikely a week before the elections and before having seen official CPI and jobs data. Once inflation figures are out, the RBNZ may tolerate a slightly higher-than-anticipated third quarter headline CPI (the projection is for 6.0% YoY), but expect greater scrutiny on non-tradable inflation (projected at 6.2%).    RBNZ inflation forecasts   Polls point to a National-led coalition Advance voting in New Zealand has already been going on for a couple of days, while physical election day will take place on Saturday 14 October, with the preliminary results starting to be released from 7PM local time. Latest opinion polls suggest that the incumbent Labour Party (of former Prime Minister Jacinda Ardern) should lose its parliament majority to the opposition National Party. A centre-right coalition, led by the National Party and supported by the right-wing ACT New Zealand is currently projected to secure somewhere between 45% and 50% of parliament seats, possibly short of a majority. A coalition may need to include the nationalist NZ First to secure enough seats: latest polls give NZ First just above the 5% threshold required to enter parliament without winning a single-member seat.   Single party and coalition opinion polls ahead of the 14 October election   The monetary policy implication of a potential shift in government First of all, the past few years have taught to take pre-election polls with a pinch of salt. Secondly, the impact of politics on NZD are generally quite limited. This time though, a change of government (assuming the polls are right and NZ First joins a National-led coalition) might have some implications for the RBNZ further down the road. The National Party recently published its pre-election fiscal plan, where it pledged more fiscal discipline compared to Labour. Specifically, National said it would spend around NZD3bn less than Labour over four years, with the aim of reducing debt at a faster pace. If the RBNZ links any rebound in CPI to additional fiscal spending, the change in government could suggest a less hawkish RBNZ in the longer run. Another aspect to consider is the RBNZ remit. Over the summer, the National Party Finance spokeperson Nicola Willis pledged to restore the central bank’s sole focus on the inflation target. This would imply removing the RBNZ’s dual mandate (maximum sustainable employment) and potentially reviewing the additional housing stability objective that were added in 2018 and in 2021 respectively. The first – and more impactful – effect would suggest higher RBNZ rates in the medium and long term; while removing housing affordability objective would in theory be a dovish argument, the stricter inflation target would likely overshadow any housing-related considerations.   FX: Domestic factors can determine relative NZD performance The Kiwi dollar has resisted USD appreciation better than other commodity currencies in the past month, and we have seen AUD/NZD fall from the recent 1.0900 peak to below 1.0700 – also thanks to the Reserve Bank of Australia hold this week. We think that the RBNZ will continue to signal upside risks to their inflation forecasts and keep the door open to more tightening if needed this week, but it is very likely that November will be a much more eventful policy meeting for NZD, with new rate and economic projections being released and after the inflation and jobs data for the third quarter are released. Expect some significant NZD volatility around the two data releases this month: we are still of the view that inflation can surprise to the upside, so expect some positive impact on NZD. Markets are currently pricing in 15bp of tightening by November. When it comes to the election outcome, a hung parliament with parties failing to find a working coalition would be the worst scenario for NZD. Should either Labour or National manage to lead a government after the vote, we expect the market implications to be mostly bonded to those for the RBNZ remit (and less so to fiscal spending). So, very limited in the event of Labour staying in power, and moderately positive for NZD (negative for NZ short-dated bonds) in a win by the National Party as markets may speculate on the remit being changed to focus solely on a strict inflation target. The chances of a hike in November will, however, depend almost entirely on CPI and jobs data, not on the vote.   Expect any meaningful swing in NZD to be mostly visible in the crosses, especially in the shape of relative performance against other commodity/high-beta currencies. A combination of National electoral win (and workable coalition) and CPI surprise could make AUD/NZD re-test the 1.0580 May low and slip to 1.0500. NZD/NOK is another interesting pair, with more room to recover after a large summer slump: a return to 6.60 is possible in the above scenario. When it comes to NZD/USD, the swings in USD continue to be an overwhelmingly dominant driver. With US 10-year yields still moving higher and our rates team pointing at 5.0% as a potential top, we see more downside for NZD/USD in the near term. NZD-positive developments domestically would not prevent a drop to 0.5800 if US bonds remain under the kind of pressure we have seen in recent weeks. In the medium run, we still expect US data to turn negative and the Fed to start cutting in first quarter 2024, which should pave the way for a sustained NZD/USD recovery.

Italian inflation sees a sharp fall on favourable energy base effects The decline in Italian inflation in October was stronger than expected, bringing the headline inflation rate temporarily below the 2% threshold. While we could see a rebound over the winter, this is good news for real disposable income developments.   Headline inflation surprises to the downside, driven by a favourable base effectWe had anticipated a steep fall in Italian headline inflation for October – but the actual data has turned out even stronger than expected. The preliminary estimate disclosed by the Istat shows that headline inflation fell to 1.8% year-on-year (from 5.3% in September), the lowest level since July 2021 and helped by huge base effects in the energy components. The bulk of the decline is explained by non-regulated (to -17.7% from +7.5% YoY) and regulated (-32.9% from -32.7% YoY) energy goods, but food components also provided a solid contribution. These falls trumped the increases in housing and transport services. Core inflation (which leaves out energy and fresh food) also decelerated to 4.2% from 4.6% in September, and now lies well above the headline measure as expected. Behind this, there is a re-widening between services inflation at 4.1% and goods inflation (+0.1%).   Inflation to return above 2% over the winter Looking ahead, the energy component will unlikely be able to act any further as a drag and we expect inflation to return back above 2% over the winter. The pace at which the core component will be able to decelerate will crucially depend on consumption developments. As shown by the preliminary estimate of third-quarter GDP also released this morning, the Italian economy stalled over the quarter, with a negative contribution of domestic demand (gross of inventories) compensated by net exports. Thanks to a resilient labour market and decent wage growth, we suspect that consumption might not have acted as a drag in the third quarter, and could gain potential support over the winter from the impact of declining inflation on real disposable income. This could potentially slow the decline in core inflation through the services component. All in all, after today’s release we're revising down our inflation forecasts to 5.9% for 2023 and 2.3% for 2024.

The Swiss National Bank appears slightly more dovish The SNB kept its key rate unchanged at 1.75%, as expected. Its message is slightly more dovish, but it doesn’t mean rate cuts are imminent.   A slightly more dovish message As expected, the Swiss national bank decided to keep its key rate unchanged at 1.75% at its December meeting, its level since June 2023. The SNB's communication is more dovish, indicating that they are clearly not considering any further rate hikes. Against a backdrop where consumer price inflation stood at 1.4% in Switzerland in November, the 6th consecutive month below 2%, this is not surprising. But the SNB is going a little further than that. First, it has revised its inflation forecasts downwards. It is now forecasting average inflation of 2.1% in 2023, 1.9% in 2024 and 1.6% in 2025, compared with 2.2%, 2.2% and 1.9%, respectively, at its previous meeting. The SNB is still expecting inflation to rebound in the coming months on the back of higher energy prices, rents and VAT. Nevertheless, it acknowledges that inflation has been weaker than expected in recent months and that "In the medium term, reduced inflationary pressure from abroad and somewhat weaker second-round effects are resulting in a downward revision". The inflation forecasts for the entire period are, therefore, within the price stability range, defined by the SNB as being between 0 and 2% inflation. According to the SNB, the balance of risks for inflation forecasts is also well balanced, with the risks of an upside surprise being as great as those of a downside surprise. In addition, although it still states that it is "willing to be active in the foreign exchange market as necessary", it no longer explains how. In recent quarters, the SNB has been buying Swiss francs to reinforce its appreciation, which has had the effect of reducing imported inflation but has also worsened the competitiveness of domestic exporters. The SNB no longer seems to favour the idea of an even stronger Swiss franc and could now start selling the currency again, which would support exports and, therefore, economic growth in Switzerland. This is a major change for the SNB.   But rate cuts are not just around the corner The message is, therefore, slightly more dovish. However, there is nothing to suggest that rate cuts will be forthcoming soon. Firstly, the SNB's target is asymmetrical, as it wants to achieve inflation of between 0 and 2%. Today's inflation forecasts fall squarely within this target, and the SNB expects inflation to be at 2% in the second and third quarters of 2024. These inflation forecasts offer little argument for an imminent rate cut. In addition, the SNB has a tool to steer monetary policy other than its policy rate: its interventions on the foreign exchange markets. It is likely to use this instrument first and start selling Swiss francs before considering rate cuts. It confirmed this between the lines during the press conference. Finally, the SNB's key rate is at 1.75%, a fairly unrestrictive level close to the level of expected inflation. Past interest rate rises are, therefore, much less damaging to the economy than they are in the United States and the Eurozone.   Against this backdrop, the SNB is likely to take a much longer pause than the Fed and the ECB. Rate cuts will probably come, but much later than the other central banks. At this stage, we are expecting the first rate cut to come in December 2024, compared with the first rate cuts expected in the first half of the year for the Fed and the ECB. Moreover, the scale of the rate cuts is likely to be much smaller than elsewhere. Total rate cuts in 2024 and 2025 could be in the region of 50bp or even a maximum of 75bp in Switzerland.   FX: SNB no longer focusing on FX sales The SNB confirmed today that it is no longer focusing on FX sales. This is consistent with our EUR/CHF update in our 2024 FX Outlook published last month and supports our view that EUR/CHF can remain stable near 0.95/0.96 next year. 

EUR: Gauging the ECB pushback Attention turns to the ECB today. Investors are currently pricing in over 125bp of rate cuts next year, with the first full cut priced for the April meeting. We think that is far too early. However, the question today is how far ECB President Christine Lagarde wants to push back against that. Feeding into the story will be revisions to ECB staff growth and inflation forecasts. The larger the downward revisions to both growth and inflation (e.g. if the 2025 CPI forecast gets cut below 2%), the more euro money market rates will soften, and the euro will lag other currencies as they advance against the softer dollar.  Our ECB market preview felt there were upside risks to EUR/USD going into this ECB meeting. EUR/USD has already enjoyed a strong rally on the back of the softer US rate view, and assuming the ECB does not fully embrace dovish expectations for next year, we would say the bias for EUR/USD lies towards 1.0945/65 and probably 1.10 multi-day. Over recent months, we have been forecasting EUR/USD to end the year somewhere near 1.07. After last night's Fed shift, we expect EUR/USD ends the year closer to 1.10 now. Also, today look out for the Norges Bank and Swiss National Bank meetings. Presumably, the SNB will cut its inflation forecasts. Having consistently sold FX since last year – delivering nominal Swiss franc appreciation and keeping the real Swiss franc stable – we are interested to hear today whether the SNB has been both buying and selling FX. If it confirms it is on both sides of EUR/CHF, rather than just being a EUR/CHF selle, and we suspect EUR/CHF can jump back up to the 0.9550 area.

Hungarian inflation ends 2023 with a downside surprise Rapid disinflation continued in December, with the fuel component stealing the show. Despite favourable domestic developments, external risks are rising, so we expect the central bank to maintain the previous 75bp pace of easing.   Base effects combined with falling fuel prices stole the show Inflation in Hungary continued to fall in December, with the Hungarian Central Statistical Office (HCSO) reporting better-than-expected data. Compared with November, headline inflation fell by 2.4ppt to 5.5%, which was the result of two factors: a high base from last year, combined with a decline in general price pressures. Although the year ended on a more positive note, 2023 will be remembered for extreme inflation, with the annual average reaching 17.6%. Similar to last month, the decoupling of headline and core readings has continued on a monthly basis. While headline inflation fell by 0.3% month-on-month, core inflation in fact increased by 0.2% MoM, signalling that the strong deceleration in the headline rate is mainly due to items which are not incorporated into the core basket. At the component level, we can highlight two main drivers: food and fuel prices, which were the main contributors to the slowdown from November to December   Main drivers of the change in headline CPI (%)   The details In line with regional developments, food prices decreased by 0.1% MoM, which together with last year’s high base brought the annual food inflation rate below 5%. Compared to November, the decrease in prices of processed food was stronger than the decrease in prices of unprocessed food. Fuel prices dropped by 5% MoM, in line with falling global oil prices. This, combined with large base effects, pulled inflation down significantly. The story is that a year earlier the fuel price cap was lifted, which led to huge price increases. However, a year later, the unit price of fuel was already lower than the market price in December 2022. Deflation in durable goods inflation continued, with prices for durable goods down 1% year-on-year in December, helped by yet another negative monthly reading. This can be explained by the relative strength in the forint, which has appreciated significantly since the turmoil of last year. Plus, the easing of external inflation helps, too. Services prices rose by 0.6% MoM, which is the highest monthly reading since July. It is likely that a significant proportion of service providers have responded by raising prices to the 10-15% minimum wage increase (which was brought forward by one month to December) and other impending cost increases (e.g. excise duty hike on fuel prices, rising road tolls). Disinflation was broad-based, mainly driven by non-core elements This time in December, the main factors behind the slowdown were non-core items, like fuel and unprocessed food prices, while the decrease in processed food prices also contributed. However, with services prices up 0.6% MoM and the annual rate still above 12%, the picture for core inflation is a little less rosy. We suspect that the impending cost increases were the main reason for the higher-than-usual monthly repricing. Nevertheless, we will have more information on the dynamics of services prices in light of the January inflation report, which will be crucial in assessing whether or not there has been a second round of price increases (due to the minimum wage increase). The latest retail price expectations suggest that underlying dynamics of repricing could continue at a relatively strong pace in early 2024.   The correlation between retail price expectations and core inflation Source: Eurostat, HCSO, ING     On a positive note, core inflation decelerated to 7.6% YoY in December, while short-term dynamics are encouraging, as core inflation on a three-month on three-month basis was below 3%. At the same time, the National Bank of Hungary's measure of inflation for sticky prices also decreased, displaying a reading of less than 8.7% YoY.   Headline and underlying inflation measures (% YoY)   Inflation could fall within the central bank's tolerance band in January Based on the latest data, we conclude that inflation could slow further in early 2024, and ING's latest forecast suggests that it could fall below the upper band of the central bank's 4% inflation target tolerance band as early as January. But this will be more a result of base effects than the lack of underlying price dynamics. However, it would be premature to declare victory as positive base effects will soon run out. As a result, we expect inflation to rise again in the second half of this year. While inflation could average a tad below 4% in the first half of the year, it could be around 5% in the second half of 2024 and around 6% at the end of this year.   We expect the central bank to remain cautious as external risks rise Although favourable domestic developments via lower-than-expected inflation readings could pave the way for the central bank to cut interest rates at a faster pace, new inflation risks have emerged in the form of rising shipping costs. Several shipping companies have already suspended shipments on the Red Sea routes due to the ongoing Houthi attacks.   Container freight benchmark rate per 40 foot box (USD)   The result of trade diversion is reduced transport capacity, longer transit times by sea and a dramatic increase in shipping costs. In this regard, we have already seen shipping costs increase by up to 120% on average in the main routes in late December and early January. The Shanghai-Rotterdam route has been hit the hardest (276%), posing serious risks to supply chains and the inflation outlook, especially in Europe. This could soon be reflected in producer prices and, of course, in consumer prices as well. The impact of the Red Sea conflict on supply chains is already being felt in Europe, with Tesla announcing that it is suspending most car production at its Berlin factory. In addition, a conflict in Taiwan cannot be ruled out, which could pose an additional inflation risk. Moreover, the coordinated US and UK airstrikes against the Houthis in Yemen overnight have once again pushed up global oil prices. Adding to the tension is the fact that Iran has also seized an oil tanker in the Gulf of Oman. In our view, all these global developments have increased external risks and therefore warrant caution, which is why we expect the National Bank of Hungary to maintain the previous pace of 75bp of easing at the January meeting.

Say something hawkish, I'm giving up on you By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The week started on a positive note on both sides of the Atlantic Ocean. Equities in both Europe and the US gained on Monday. The tech stocks continued to do the heavy lifting with Nvidia hitting another record. The positive chip vibes also marked the European trading session; the Dutch semiconductor manufacturer ASML regained its status as the third-largest listed company in Europe, surpassing Nestle, thanks to an analyst upgrade.  Moving forward, the earnings announcements will take the center stage, with Netflix due to announce its Q4 results today after the bell. The streaming giant expects to have added millions more of new paid subscribers to its platform after it scrapped password sharing last year.   Away from the sunny US stocks, the situation is much less exciting for China. Right now, the CSI 300 stocks trade near 5-year lows and Chinese stocks listed in Hong Kong are trading with the deepest discount to the mainland peers in 15 years, as the Chinese interventions are said to be less felt in Hong Kong than in the mainland. Today, though, the Chinese stocks are better bid because Chinese Premier Li Qiang called for more effective measures to stabilize the slumping Chinese stocks, but the truth is, investors left Chinese stocks because of the ferocious government crackdown on most loved Chinese companies. Nothing less than drastic financial support would be enough to bring investors back.  The Japanese stocks continue to be the bright spot among the Asian equity markets. The Bank of Japan's (BoJ) negative interest rates, the cheap yen and the positive outcomes of the tech war between the US and China have been pushing the Japanese Nikkei index to multi-decade highs, and these factors are not ready to reverse just yet. Today, the BoJ didn't only announce that it would keep the interest rates unchanged at -0.10% and the upper band for the 10-yer yield steady at 1%, but the bank lowered its inflation forecasts citing the decline in oil prices. We haven't heard the BoJ presser at the time of writing but lowering inflation forecast highlights that there is no emergency to make any changes to the BoJ policy, even less so after a powerful earthquake hit the island at the very beginning of the year. On the contrary, if inflation – which is the bad side of low rates – is under control, the bank would do better to keep the rates low and its economy supported. As such, the USDJPY remains bid above the 148 level after the BoJ decision and before the post-decision presser. The long yen trade looks much less appetizing today than it did by the end of last year. Yet going short the yen is a risky option considering the rising risk of a verbal intervention when the USDJPY approaches the 150 level. Therefore, the USDJPY will likely waver between the 145/150 range, until there is more clarity about the timing of the BoJ normalization.   Elsewhere, the day is expected to unfold slowly. Investors will monitor the Richmond manufacturing index and await Netflix's earnings release. Additionally, attention is on Donald Trump, who has gained favoritism after Ron DeSantis withdrew his support and endorsed Mr. Trump for this year's presidential race. The potential impact of a Trump victory on financial markets is challenging to quantify; he may adopt a tougher stance on China, implement tax cuts, and increase spending, leading to mixed effects.   For those who missed out on the meme stock frenzy, it's however intriguing to observe Trump's special-purpose acquisition company, DWAC, which surged nearly 90% yesterday.  

Four scenarios for the Bank of England's February meeting Expect the BoE to drop the pretence that it could hike rates again but to continue signalling rates will stay restrictive for an "extended period". With services inflation and wage growth to remain sticky in the near term, we think August is the most likely starting point for rate cuts.   Four scenarios for the Bank of England meeting   The BoE seems more reticent than other central banks to endorse rate cuts Both the Federal Reserve and European Central Bank have hinted, with varying degrees of caveats, that rate cuts are on the cards this year. So far, the Bank of England hasn’t followed suit. It was careful not to say anything at the December meeting that could be misconstrued as an endorsement of market pricing on cuts. And there has essentially been radio silence from committee members since then. We suspect the Bank will still want to tread carefully as it gears up for the first meeting of 2024. But the reality is that defending a “higher for longer” stance on interest rates is getting harder as the inflation backdrop shows signs of improving. Remember that the BoE has pinned the chances of rate cuts on three variables. One is the strength of the jobs market, but data here is suffering from well-known reliability problems. So, in practice, it comes down to services inflation and private-sector wage growth. Both are tracking well below the November BoE projections. Services CPI is currently 6.4%, and despite that coming as an upside surprise to consensus when it was released, it’s still half a percentage point below the BoE’s projection. Private wage growth is 6.5%, but remember this is a three-month average and the latest two ‘single month’ readings are around 6%. When we get the data in a couple of weeks, this variable is likely to have ended the year a full percentage point below the BoE’s most recent forecast (7.2%). Add in the fact that natural gas prices are noticeably lower across the futures curve, and we should see sizeable downward revisions to the Bank’s inflation forecasts for this year. But what happens to the forecasts beyond 2024 is less clear-cut.   Financial markets expect roughly four UK rate cuts this year