The FP Markets research team produce First Light News during the early hours of the European session, ensuring traders and investors are up to date in the FX space for the day ahead.

Good morning.

RBNZ Hikes Rates

As expected, the early hours of trading on Wednesday witnessed the Reserve Bank of New Zealand (RBNZ) increase the Official Cash Rate (OCR) by 25 basis points to 5.5% in a 5-2 majority decision—its highest rate in nearly 15 years. The central bank also signalled a pause in policy firming, though it was communicated that rates would need to remain in restrictive territory for the foreseeable future. The immediate aftermath witnessed the NZD/USD currency pair plunge around 50 pips to touch gloves with a low of $0.6170, with price action in early European hours down -1.7%.

(Source: RBNZ)

UK Inflation

A little nearer home, UK inflation data hit the wires at 7:00 am GMT+1 this morning. According to the Office for National Statistics (ONS), headline YoY inflation was +8.7% in April versus the +8.3% forecast (10.1% previous), which marks the lowest rate since early 2022 and the first time we’ve been below 10.0% since September 2022. While this marks a considerable slowdown in consumer prices for the UK, core YoY inflation was disappointing, coming in at a whopping 6.8% versus 6.2%, its highest rate since the early 1990s. The word sticky certainly comes to mind, and along with the strength seen in services, this places the Bank of England (BoE) in a real bind for next month’s MPC meeting. As of writing, markets are pricing an 85% chance that the central bank will hike in June over a 15% probability of pressing the pause button. However, let’s also remember that we have another CPI release before the June meeting.

The GBP/USD currency pair spiked higher following the inflation data, though it swiftly erased recent gains and is seen testing pre-announcement levels as of writing. Overall, I see little damage to technical structure. In fact, the H1 chart recently tested the underside of a local trendline support-turned-resistance and came within a whisker of testing a converging harmonic H1 AB=CD formation denoted by way of the 100% projection ratio at $1.2467. Further downside from this point could see short-term flow take aim at $1.24. The GBP/NZD cross was also a notable winner this morning, given that the NZD was belted lower earlier and the GBP was recently underpinned on the inflation print.

GBP/USD H1 Chart:

(Trading View)

Major Currency Markets as of around 8:10 am GMT+1:

(Trading View)

Headline Events for the Day Ahead:

We now look towards the minutes from the latest (May) FOMC meeting at 7:00 am GMT+1, which saw the Fed pull the Fed Funds target range to 5.00%-5.25%. Markets are pricing in a strong possibility that the Fed will leave rates unchanged at next month’s policy meeting with subsequent cuts into the year-end. However, there is a disconnect given that several Fed members have been expressing over the past few weeks.

Federal Open Market Committee (FOMC) Meeting Minutes at 7:00 pm GMT+1.

Thanks for reading. Have a great day!

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