GBP Shows Strength, EUR Awaits ECB Decision & USD Faces Downward Pressure
GBP
The UK economic landscape displays signs of improvement, with February’s PMI figures surpassing expectations. Despite this positive trend, inflation in the UK remains the highest among G-7 nations, prompting the Bank of England to maintain interest rates in restrictive territory for an extended period.
Amidst this backdrop, the Pound has advanced against both the Euro and the Dollar, currently trading at 1.1706 and 1.2717, respectively. Market sentiment suggests that the BoE may keep interest rates higher for a prolonged period compared to the Fed and the ECB. Such prospects of elevated interest rates often attract increased foreign investment, thus bolstering the Pound’s strength.
While markets anticipate a potential BoE interest rate cut from August onwards, policymakers seem inclined to sustain rates at 5.25% until they are confident in inflation’s trajectory towards the 2% target rate.
This week, the UK’s economic calendar is relatively light on impactful data. Wednesday will witness the unveiling of the spring budget by Treasury Chancellor Jeremy Hunt, historically not a significant catalyst for FX market movements. Instead, investors and speculators will turn their attention to key data releases from the US and Eurozone for potential market implications.
EUR
The Euro gained ground towards the end of last week on the back of stronger-than-expected inflation data in the Eurozone. This suggests that the European Central Bank may not rush into cutting interest rates when they announce their decision on Thursday.
The Euro hasn’t shown a much clear direction as of late due to limited important economic data. Instead, investors and speculators focused on less impactful figures released during the session, like the finalised services and composite PMIs for the Eurozone.
The services index for February beat expectations, showing the first growth in the Eurozone’s services sector in seven months. This, along with a better-than-expected composite PMI, indicated that the Eurozone economy might not be contracting as quickly as previously thought, boosting confidence in the Euro. However, momentum was somewhat restrained as investors paused in anticipation of the ECB’s upcoming interest rate decision scheduled for Thursday. Additionally, we’re keeping an eye out for GDP figures from the Eurozone, set to be released on Friday, which will offer further insights into the economic outlook.
USD
The Dollar faced some downward pressure yesterday due to disappointing ISM Services PMI data, which measures business activity. Additionally, Factory Orders fell short of expectations, and there were more layoffs in the manufacturing sector, indicating a less optimistic economic outlook.
This week will be crucial for the Dollar as Federal Reserve Chair Jerome Powell is scheduled to testify before Congress today and Thursday. Also, Nonfarm Payrolls data will be released on Friday, providing insights into when the Fed might consider adjusting interest rates. Market expectations are for a non-payroll reading of 190K. Any surprises in the data will lead to fluctuations in the Dollar.
If you have an upcoming currency requirement and would like to hear more about what is affecting the markets in the coming weeks, please contact us on 020 3876 5432.