GBP gained slightly after release of disappointing UK jobs report for March today at 7:00 am BST. However, those gains turned out to be short-lived and GBPUSD quickly erased the advance. Pair continued to move lower with the downward move accelerating after comments from BoE chief economist Huw Pill. Below are key headlines from Pill's speech:
- We are making goods progress on returning CPI to the target
- There is still some work to do on inflation persistence
- There is still work to do to secure inflation at the 2% target
- Negative contribution from energy is about to go away
- Focus is on the labour market, pay growth and service prices
- Labour market is easing but still historically tight
- Pay growth data is consistent with the small decline in Q1
- Rates of pay growth remain quite well above what would be consistent for meeting the 2% inflation target sustainably
- We still have some way to go on wages
- Services inflation seems to have peaked
- Persistent inflation is capped and coming down, persistence is at levels that mean some way is to go
- We need to keep a restrictive stance on monetary policy that continues to bear down on domestic inflation persistence
- There is less restriction needed as persistence eases
- We can cut rates while leaving our stance restrictive
- It's not unreasonable to believe that over Summer we will see enough confidence to consider rate cuts
While Pill's comments have been slightly dovish at first, a hint the it is not unreasonable to believe BoE will gain enough confidence over summer to cut rates is slightly hawkish. Money markets are pricing an over-60% of Bank of England delivering the first-rate cut at June meeting. On top of that, Pill said that there is a need to keep restrictive policy stance. Those comments suggest that June may be too early for a cut. Nevertheless, acknowledgement of imminent cuts by BoE chief economists seems enough for markets to react in a dovish manner.
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GBPUSD deepened declines after comments from BoE Pill. The pair slumped below 200-hour moving average (purple line), erasing all of yesterday's gains. Source: xStation5
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