FX Update: Bank of England in the hottest of seats after another hot core UK CPI reading.

Today's Saxo Market Call podcast

FX Trading focus:

• Three central bank meetings tomorrow from Bank of England, Swiss National Bank and Norges Bank - all with the size of the rate hike in question
• Another hot core UK core CPI print today, and yet sterling off - market seems worried that BoE can't deliver what is expected.

Thursday's CB decisions: a reacceleration in hike expectations?
The RBA minutes stating that the latest rate hike was "finely balanced" suggest that the RBA will be in pause mode again at the July meeting and have helped drive the recent AUD consolidation (next key is the 0.6700 area and just below) Elsewhere, there is plenty of fuel to drive an acceleration of rate hike expectations, even if today's reaction to the hot UK CPI data (weaker sterling and the inability to stick new highs in UK short yields even if yields did rise from yesterday's lows) does suggest that the bar is quite high for a hawkish surprise from tomorrow's Bank of England decision. Norges Bank and Swiss National Bank tomorrow could also round out whether the recent shift toward more hawkish expectations is confirmed in both the decision and guidance at the three G10 central bank meetings tomorrow. some more thoughts below on each of the three meetings.

Otherwise, perhaps the most interesting thing to note is the very strong level of risk sentiment across global markets as we note in today's Saxo Market Call podcast. That generally supports a weaker USD in reflexive fashion, but we need a "refresher" wave of USD weakness to suggest the prior one hinted at a more profound sell-off is underway. The first of two days of Fed Chair Powell testimony are set for today before a House Panel, but Chair Powell may not have much on his mind besides his "data dependent" message as per the last FOMC meeting's press conference.

Bank of England
Bank of England: the last two shocking core inflation and very positive revisions to alarming April labor market data have all come since the prior Bank of England meeting and have taken forward Bank of England hike expectations skyward, with a full 150 basis points priced in through early next year, which would mean a Bank of England would have to take the policy rate close to 6.0%. Governor Bailey has shown a reluctance at every turn to turn fully hawkish, but this data is so stark, requiring a strong response, that we have to expect that the BoE does what it can to claw back as much credibility as it can, or else. Finger pointing and a small hike could prove devastating for sterling. In short: the market has already priced 90 basis points through the next three meeting, so to clear the expectations bar, the BoE may need to hike 50 points and hawkish guidance to support sterling again. Today's sterling weakness shows doubt at the margin, perhaps justifiable, that the BoE will struggle to deliver.

Chart: EURGBP
EURGBP rallying sharply today despite hot new UK inflation suggests that the Bank of England has a lot to deliver to support the bullish sterling case. There is plenty of room for this pair to consolidate higher without reversing the down-trend, but 0.8675 possible begins to stress it badly. The market will be very reactive to tomorrow's Bank of England meeting.