Weekly Round-Up & The Week Ahead

Weekly round-up and a look at the week ahead for EUR, GBP, and USD.

USD

Risk flows were evident last week with the safe-haven dollar gaining with tensions escalating in the middle-east. While inflation and central bank action has driven pricing for much of the last few years, geo-political events have seemingly increased, keeping the dollar well supported. Fed talk was closely watched, and in general stayed in line with recent noise from policymakers. The overriding message is that there is no rush to cut rates, especially while inflation remains well above target and the economy and labour markets remain strong. Markets now see only one or two cuts in 2024 from the Fed, a huge reduction on the 100+ basis points that were predicted earlier this year.

US data comes back to the fore this week with S&P Global PMI’s, Durable Goods Orders, GDP and most importantly Core PCE, the Fed’s preferred method to measure inflation. Expect recent levels of volatility to continue.

EUR

Dollar strength has pushed EUR/USD back below 1.07 in the last two weeks, testing November lows, but the euro has managed to gain against GBP and continues that run as we begin the new week. Speeches from ECB policymakers suggested that the central bank is on course to begin a cutting cycle as the market expects in June, with something fairly major required in the data to throw them off course. Eurozone data was light last week and that perhaps allowed the common currency to fly below the radar, something sterling has managed to do in recent months.

This week is also quiet for EU based data, aside from HCOB PMI’s released on Tuesday. With ECB members mostly in unison on the timing of the initial rate cut, perhaps the removal of some uncertainty is providing a steadier base than that currently beneath the BoE.

GBP

UK data was pushed back into focus last week and did little overall to help the pound. Unemployment rose to its highest level since last summer, reading 4.2% for the three months through February, up from 4% previously. Average Earnings stayed fairly steady, but it was a slightly higher than anticipated inflation reading that caught the markets attention. CPI data revealed prices rising 3.2% year on year, 4.2% in core form, temporarily lifting the pound, although those gains were swiftly erased in the latter part of the week. The moves in GBP/USD and GBP/EUR suggest we may be heading towards a period where the pound looks unattractive to all, something that has been evident in periods since Brexit.

S&P Global PMI’s are the only high tier data release in the UK this week. Talk on policy divergence may have an effect but the pound starts the week under pressure and that trend may be hard to break.

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