Takeaway

The speaker highlights that hotter-than-expected U.S. inflation data (Core CPI 0.3% MoM vs 0.2% exp) has significantly shifted expectations for next week's FOMC meeting. The probability of a 25 bps hike has jumped from 70% to 90%, creating potential trading opportunities based on policy divergence with the Bank of England and Bank of Japan, which also decide rates next week.

What the presenter said

• Hotter-than-expected US PPI and Core CPI (0.3% vs 0.2% expected) have turned expectations for next week's FOMC decision more hawkish. [00:37, 00:58]
• The market-implied probability of a Fed rate hike next week has risen from around 70% to 90%. [01:06]
• The market is now expecting two rate hikes from the Fed this year. [02:16]
• The Bank of England is not expected to move on rates, with only a 30% probability of a hike priced in. Governor Bailey has sounded more patient on inflation recently. [02:29, 02:37]
• The Bank of Japan is expected to hike rates by 25 basis points to 1.25%, the highest since April 1995, as underlying inflation creeps towards 2%. [04:11, 04:26]
• The ECB hiked rates by 25 bps and upwardly revised its inflation and growth forecasts, which the presenter viewed as more hawkish than expected. [00:05, 00:18]

Trade ideas

• Instrument: GBP/USD

  • Direction: Short
  • Thesis: If the Fed is hawkish and the BoE is cautious, the pair might break below the 1.3490 support level.
  • Horizon: Short-term
  • Conviction: Medium

• Instrument: GBP/USD

  • Direction: Long
  • Thesis: If the Fed is dovish and the BoE is hawkish, the pair could break above 1.35 to continue its uptrend towards 1.3550.
  • Target: 1.3550
  • Horizon: Short-term
  • Conviction: Medium

• Instrument: USD/JPY

  • Direction: Long
  • Thesis: If the BoJ is hawkish (signalling a quicker next hike), a break above 154.60 could bring 155.20 into focus.
  • Target: 155.20
  • Horizon: Short-term
  • Conviction: Medium

• Instrument: USD/JPY

  • Direction: Short
  • Thesis: If the BoJ is dovish (needs more data) and the Fed is hawkish, a break below 153 could target 152 (the 2026 low).
  • Target: 152
  • Horizon: Short-term
  • Conviction: Medium

Levels and data cited

Price Levels: * GBP/USD: 1.3490 (Support), 1.35 (Resistance), 1.3550 (Target) * USD/JPY: 160 (Resistance), 154.60 (Resistance), 155.20 (Target), 153 (Support), 152 (Target / 2026 Low)

Data Cited: * US Core CPI (MoM): 0.3% (vs 0.2% expected) * FOMC Rate Hike Probability: 90% (up from 70%) * Bank of England Rate Hike Probability: 30% * ECB Rate Hike: 25 basis points * ECB: Upwardly revised inflation forecasts for 2027/2028 and growth forecasts for this year/next. * Bank of Japan: Expected to hike rates to 1.25%. * Oil prices: Above $100 a barrel.

Risks and what would invalidate this

• The speaker notes that if the Fed did not hike, it would raise questions about its credibility.
• A dovish Bank of Japan (stating a need for more data) combined with a hawkish Federal Reserve could be disappointing for those positioned for Yen strength.