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Foreign Exchange Analysis ~ 13 May 2024


GB Pound

What happened last week?

 The BoE voted 7-2 in favour of holding rates at 5.25% accompanied by slightly higher rate forecasts. GBPUSD ended the week supported by Q1 GDP data beating expectations, resulting in the UK exiting recession with faster growth in two years.

 

What to watch for in the short-term?

 UK employment data is not expected to move Sterling materially on Tuesday as GBP’s price action seems to be trading mostly on inflation data at the moment. With this in mind, we could see GBPUSD make a break back beneath 1.25 if US PPI and CPI comes in particularly hot this week.

 

What about the coming months? While the geopolitical developments in the Middle East pose an upside risk to the trajectory of consumer prices, inflation persistence seems to be trending downwards which points to a summer cut for the UK and Sterling weakness in the medium term.

 

Calendar

Tuesday 6am | Unemployment (Mar)



US Dollar

What happened last week?

 EURUSD gained 0.3% on Thursday on the back of a Dollar selloff, triggered by cooling jobless claims in the US.

What to watch for in the short-term?

 With last week’s employment data pushing September rate cut bets higher, markets look forward to a crucial week with US PPI and CPI data.

In other news, this week could see USDCNH volatility with a small chance of a Chinese rate cut on Wednesday and a possible increase to US import tariffs for Chinese EV’s and batteries.

What about the coming months?

↑ Market expectations on when and how many rate cuts seems to be widening. A broader “consensus” could mean markets are less confident on the outlook of interest rates and therefore the direction of the dollar.

Calendar

Tuesday 12.30pm | PPI

Wednesday 12.30pm | CPI


Euro

What happened last week?

 Despite last week’s quiet calendar in Europe, GBPEUR consistently depreciated as markets begin to favour 2 European rate cuts this year over 3.

 

What to watch for in the short-term?

 As Europe has a bigger week for economic data, we could see some choppier EUR movements on the back of GDP and HICP data. Market consensus currently sees HICP (0.6% MoM) and Core HICP (2.7% YoY) unchanged in April.  

 

What about the coming months? Since last week markets have decreased 2024 European rate cut expectations from c.75bp to c. 68bp. If this trend continues toward 50bp over the summer months we could see a stronger EUR than previously expected.

 

Calendar

Wednesday 9am | Tuesday GDP (Q1)

Friday 9am | HICP (Apr)





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