GBP/USD crawled higher for a third day by 0.1% to 1.2723 ahead of today’s Bank of England meeting.Despite the UK’s CPI inflation hitting the 2% target in May for the first time in three years, we do not expect the BOE to lower the bank rate from 5.25% due to the UK snap election on July 4. Additionally, CPI core and services inflation remained too high at 3.5% and 5.7%, respectively. Average weekly earnings remained elevated for a second month at 5.9% YoY in April. The UK economy exited its technical recession with the highest GDP growth rate (0.6% QoQ sa in 1Q24) since 4Q21. 
However, the BOE could pave the way to remove top-level restriction in monetary policy in the summer if one or more members join the two – Swati Dhingra and Dave Ramsden – who voted for a cut last month. In the Monetary Policy Committee’s May Report projections, the BOE forecasted CPI inflation at 1.9% in two years’ time and 1.6% in three years. The claimant count rate increased to 4.3% in May after holding steady at 4.1% for seven months. The BOE faces a tough balancing act today that will decide if GBP/USD stays in the lower half or moves into the upper half of its 1.2650-1.2850 range set in mid-May. All said, GBP was the most resilient currency in the DXY basket this year, barely changing from the 1.2730 level seen at the end of 2023. 
USD/CHF could potentially start consolidating in the 0.8725-0.8895 range seen between mid-February and mid-March. Today, we do not expect the Swiss National Bank to deliver a back-to-back rate cut at its meeting. USD/CHF broke below its two-month range of 0.90-0.92 this month after SNB President Thomas Jordan blamed the CHF’s weakness for the rebound in CPI inflation from 1% YoY in March to 1.4% in April, slightly below the 1.50% policy. Jordan also warned that R-star might be higher than the estimated 0%. The Swiss economy also improved in 1Q24, posting its highest growth since 2Q22. However, the SNB may temper its comments about CHF weakness, noting its haven status from the volatility surrounding the uncertainties of the upcoming snap elections in France (two rounds on June 30 and July 4) and the UK (July 4). For example, EUR/CHF plunged by 4.6% to 0.9480 on June 19 from its 0.9930 peak on May 27, and GBP/CHF by 3.9% from 1.1680 to 1.1220 over the comparable period.
Quote of the day
“Our dilemma is that we hate change and love it at the same time; what we really want is for things to remain the same but get better.”
Sydney J. Harris
20 June in history
In 1991, the German Bundestag voted to move seat of government from the former West German capital of Bonn to the present capital of Berlin.
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