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BoC Pauses Cuts, US Data Misses, and ECB Eyes First Rate Reduction

The Bank of Canada look likely to becoming towards the end of their rate cutting cycle after they opted to keep current interest rates on hold, keeping in tune with the pause in rates in April as well. Prior to April’s pause, the Bank of Canada had cut interest rates at seven consecutive meetings but now seem content to remain cautious with rate decisions whilst they try to navigate these uncertain times. Alongside this sentiment, Governor Tiff Macklem failed to rule out further interest rates later in the year.

GBP/USD has also risen to highs of 1.3580 this morning after Services PMI in The US disappointed yesterday. The drop by 1.7 points last month showed a notable downturn in business activity and new orders. The slowdown last month presents an even stronger indicator of the fallout from Trump’s Tariffs, as well as aggressive increase in costs that been seemingly rising for some time. In normal times, rising inflation and a slowing economy would lead to The Federal Reserve cutting interest rates, however if inflation keeps rising then keeping interest rates higher is needed.

Sticking with The US, we also had the monthly release of ADP Private Payrolls for May which again was disappointing reading. Last month just 37,000 jobs were created which is the lowest figure in over two years and was also massively below market expectations of 115,000. With Non-Farm Payrolls tomorrow, this does not bode well for a jobs market which as been under pressure for quite some time.

The focus today is purely on The European Central Bank’s rate decision just after Midday. With Inflation in Europe dropping closer to their 2% target, this all but paves the way for an interest rate cut. Markets are expecting another cut of 25 basis-points, which would bring their rates down to 2% from 2.25%. Figures released in April showed core inflation had dipped to 2.3% from 2.7%, further cementing the position for an interest rate cut.

GBP/EUR 1.1878 GBP/USD 1.3554 GBP/AED 4.9804
GBP/AUD 2.0849 GBP/CHF 1.1120 GBP/CAD 1.8524
GBP/NZD 2.2453 EUR/USD 1.1402 GBP/ZAR 24.1437

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