There was only a limited impact from the latest GDP data with the weaker data for March offset by slight growth for the first quarter. Bank of England chief economist Pill stated that the bank is not intending to give a directional bias on future rate decisions. He added that there may be more work to do to bring inflation down, but the bank is seeing evidence that the economy is moving into a more favourable direction on the inflation outlook. In this context, he added that the outlook would be different if there is evidence that inflation pressures are easing. At this stage, markets consider that the most likely outcome is for a further interest rate increase at the June meeting. BoE expectations should still offer some net support for the Pound.
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Bundesbank head Nagel reiterated on Friday that inflation is still high and too strong with further interest rate hikes needed, but the Euro was unable to gain support. Over the weekend, ECB Vice-President de Guindos stated that interest rate increases were in their final stretch, but council member Kazimir stated that the bank may continue with rate hikes for longer than expected, maintaining uncertainty over the outlook.
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According to provisional data for May, the University of Michigan consumer confidence index dipped to 57.7 from 63.5 the previous month and significantly below consensus forecasts of 63.0. The current conditions component retreated to 64.5 from 68.2 with the expectations index posting a sharp decline to 53.4 from 60.5. Both figures were weaker than expected and the overall index was at the lowest level since November 2022. The 1-year inflation expectations index edged lower to 4.5% from 4.6% with the 5-year index at 3.2% from 3.0% previously.
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