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Foreign Exchange Analysis ~ 29 April 2024


GB Pound

What happened last week?

↓ A quiet week for the UK meant that GBP movements were driven predominantly by data in the US.

 

What to watch for in the short-term?

 With the next interest rate announcement from the Bank of England on May 9th, a light UK data this week is unlikely to move Sterling materially. Nevertheless, GBPUSD could see some choppy price action in the near term if the Fed hint to holding rates at current levels for longer on Wednesday’s announcement.

 

What about the coming months? As rate cut bets in America get pushed further toward the end of 2024, we will likely see more dollar strength as monetary policy diverges.


US Dollar

What happened last week?

 Last week’s Q1 growth came in significantly lower than expectations (Annualised Q1 GDP 1.6% Vs 2.5% consensus) while PCE came broadly in like with forecasts (2.7% Vs 2.6%).

In other news, USDJPY briefly hit 160 (the highest level since 1990) before quickly retracing c.2.5%. Many believe the swift reversal is evidence of a Japanese intervention although officials haven’t confirmed suspicions.

What to watch for in the short-term?

 All eyes look toward Fed Chair Powell’s rhetoric in this week’s interest rate announcement. Whilst the Fed is widely anticipated to hold interest rates steady, particular attention will be placed on any mention of no rate cuts for the foreseeable which could push the dollar higher. As the central bank policy remains data-dependent, investors will also focus on Friday’s job report for further clues on rates’ direction.

What about the coming months?

↑ The upside risk for the dollar over the coming months is untameable inflation giving the Fed no choice but to hold rates at current levels for the remainder of the year.

Calendar

Wednesday 6pm | interest rate decision

Friday 12.30pm | Nonfarm payrolls


Euro

What happened last week?

↓ The single currency continued to depreciate against Sterling last week.

 

What to watch for in the short-term?

 If the data in Europe this week comes in line with expectations, a June rate cut is almost a certainty. On Monday, Germany and Spain release their latest set of CPI figures before the harmonized inflation data on Tuesday.

 

Markets predict a slowdown in core inflation (from 2.9% in March to 2.6% in April) which could push GBPEUR above 1.17 (a level not seen since April 2023).

 

What about the coming months? With diverging monetary policy in H2 2024 we will likely weaker Euro demand. On the other hand, if energy supply chain issues cause inflation to remain higher than the market currently expects, we could see Euro appreciation over the coming months.

 

Calendar

Tuesday 9am | HICP (Apr)

Tuesday 9am | GDP (Q1)



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