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Foreign Exchange Analysis ~ 03 April 2023


GB Pound

What happened last week?

The pound continued to shadow the euro and made an attempt to move higher against the US dollar.


What to watch for in the short-term?

It’s difficult to see many drivers for the pound in one direction or the other currently. The most recent Bank of England meeting showed a central bank eager to impress upon wider markets that rates can and will go higher should the data from the UK economy deem that they need to.


Current data from the UK suggests that inflation pressures are stubborn and wage increases will likely perpetuate such strength alongside the solidity of the jobs market. Sterling will be watching the data incredibly closely given reticence at other central banks to raise rates much further from current levels.


What about the coming months? We are heading into an interesting time for the UK economy with fresh strikes likely from public sector workers and increased pressure on household incomes. The UK consumer remains the engine of the UK economy but is under pressure as we head into summer.


Calendar

Wednesday 09.30 BST | UK Services PMI


US Dollar

What happened last week?

News from Opec+ members that they would cut supplies to keep oil prices high has thrown a spanner in the works for those looking for a weaker USD.


What to watch for in the short-term?

Market pricing of Fed actions in the coming months weakened after Silicon Valley Bank and Credit Suisse only to rise once again on thoughts that higher oil prices will prompt further action from the world’s central banks.


In a world wherein some central banks have managed to stay the course on hawkish rhetoric, the Fed may need to recommit to higher rates, driving the USD onwards in the coming months.


What about the coming months? If the data continues to feed into expectations that the US economy is ‘running hot’ then we can easily see the dollar throwing its weight around into the summer months, especially since forecasted cuts to rates are now being erased.


Calendar

Wednesday 13.30 BST | US Services ISM

Friday 13.30 BST | US Non-Farm Payrolls


Euro

What happened last week? The data calendar from the Eurozone has been quiet but the news from global oil markets has brought EURUSD lower. What to watch for in the short-term? Credit Suisse risk has largely been havened off and nobody – nobody serious at least – is talking about Deutsche Bank in an immediate, negative fashion, suggesting that those concerns have been dealt with for now. Having made so many waves in recent months, it will likely remain ECB speakers that are the main impulse for the single currency in the coming weeks. Comments from Lagarde and Villeroy last week suggest that should data remain strong then May will see higher rates once again in the eurozone. What about the coming months? The oil news over the weekend has knocked some of the air out of the single currency but as long as the wider strength in economic indicators remain we can see a world wherein EURUSD breaks above 1.10. Calendar Wednesday 07.00 BST | German Factory Orders







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