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[MARKET ANALYSIS] USD tentative into Warsh's first FOMC, GBP weaker after cooler than expected CPI, SEK softens on stale forecasts

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[MARKET ANALYSIS] USD tentative into Warsh's first FOMC, GBP weaker after cooler than expected CPI, SEK softens on stale forecasts

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  • DXY is on a modestly firmer footing after softening on Monday alongside a decline in yields and lower oil prices. Focus today is overwhelmingly on Warsh’s first FOMC meeting as chair, where the committee is widely expected to keep the federal funds rate unchanged at 3.50-3.75%. Within the meeting, attention will be on language surrounding the easing bias, and the dot plots, which ING believes a removal of the bias alongside a cut to the 2026 dot plot, would support the Buck. Alongside these points, Warsh’s communication will be closely monitored. (Full Fed preview in the Newsquawk Research suite). DXY lacks direction, trading unchanged and supported just above 99.50. 
  • In short, a cooler than expected UK CPI print, which falls beneath BoE forecasts on both a headline and core basis, services were also cooler than BoE forecast, but in line/hotter than analyst forecasts, depending on which data vendor is cited. GBP weakened post-data; Cable fell as much as 20 pips to a 1.3408 trough before paring modestly. The pair dipped below its 200DMA @1.3418.
  • UK CPI: Holds at 2.8% (exp. 3.0%, BoE fcst. 3.3%), undershooting market expectations and notably below the BoE staff forecast. The as-expected/slightly hotter (depending on the consensus provider) services figure will be a point of concern for policymakers and may well be enough to keep some dissenters in play, despite it coming below staff forecasts, and the significant energy benchmark moderation in recent days. The MPC, set to convene on Thursday, will likely have welcomed the print, however it is ultimately unlikely to shift the dial back towards easing in the immediate future. The remarks from the ONS' Chief Economist also paint an optimistic inflation picture, where he said that much of the upward movement came from transport, with airfares and petrol prices pushing up inflation; temporary factors, which could ease, given the latest US-Iran deal.
  • Two-way action seen in SEK, which is modestly softer post-announcement despite the forecasts implying a greater chance of a 2026 hike. Pressure that is a function of the fact that the forecasts and statement are based on information up to the 11th of June, as such the fall in energy benchmarks seen in the last few sessions on the US-Iran MOU progress is not accounted for, and therefore the hawkish tilt to the policy forecast is likely to be unwound in the next meeting, if the MOU holds and the energy retreat sticks and/or extends. We may get more details from Governor Thedeen at 10:00BST, and the Minutes on the 24th of June.

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