Market Insight

Weekly Round-Up & The Week Ahead

Reece Dye

Reece Dye

Head of Corporate Clients

Published Last Updated 4 min read

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

USD

The divergence of monetary policy by the Federal Reserve, BoE and ECB is at present the most influential factor on the G3 currency pairs. Everyone’s asking the same question, when is the right time to cut interest rates and who will be the first to act. Ultimately all decisions will be data driven, both Durable Goods and S&P Global Manufacturing/Services PMI data released last week came in above forecasts whilst Initial Jobless Claims came in below the 220K estimate. All three releases would have aided the Doves call to arms.

A short trading week doesn’t hinder the data docket as GDP, Core Personal Consumption Expenditures and the Fed’s Beige Book are all released. The greenback traded softer closing out last week and EUR/USD holds on to the gains trading above 1.0870 at the time of writing.

EUR

The ECB were under criticism when tightening of monetary policy was a global theme as many argued they acted too late, however the ECB may be one of the first major central banks to cut interest rates from the record high 4 percent. Philip Lane, the ECB’s chief economist, sent the strongest signal that we should expect a rate cut next week. Lane commented ‘barring major surprises, at this point in time there is enough in what we see to remove the top level of restriction’.

If a major surprise does crop up, it will be later this week in the form of Eurozone CPI data released on Friday. Forecast suggest an uptick of 0.1% to 2.5%, the first increase in 4-months, if we do see inflation creep higher it could cast doubt in the governing councils mind on whether it is the appropriate time to cut rates. German CPI data will be the prelude to the release on Friday, similar to the bloc, YoY inflation is expected to edge higher to 2.7%. EURGBP remains muted after the early month drop into the 0.8500 handle.

GBP

The election campaign is well and truly under way, both Rishi Sunak and Sir Keir Starmer have been on the offensive over the weekend. Rishi Sunak will today announce a £2.4bn tax cut for pensioners as he plans to unfreeze the personal allowance for pensioners. The move comes as Conservatives look to secure the over 70 age group after a YouGov poll suggested over-70s are the only age group likely to vote Tory over Labour. Meanwhile Starmer is laying out the foundations that Labour is ‘pro business and pro workers’, shadow chancellor Rachel Reeves prepares a speech today targeting the City of London with the promise of restoring ‘stability’ and criticizing Conservative handling of the economy.

Sterling has been a strong performer of late, the economy will be a huge talking point in the election which won’t help Andrew Bailey’s decision making over the coming weeks. Theoretically the two are separate however with both campaigns running on economic performance any decision made by the BoE will be latched on to by both parties. GBP/USD holds on to the Friday gains and remains above 1.2700.


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