Last week was wild - what's ahead this week?

Last week saw the UK and US hold rates but indicate that cuts are on the way. The Swiss cut rates by 0.25% (the first western nation to begin the cutting cycle) and Turkey raised rates once again.

USD: The USD initially lost ground on Wednesday evening at the US Fed announced that interest rate cuts were on the way, but this was reversed after some strong data at the end of last week. Most economists expect 3 cuts, starting in June and possibly stopping the cuts in 2025 if Trump enacts his proposed universal import tariff which will inevitably bring about another round of inflation.

 Support for the USD continues today after Fed member Bostic said that he anticipates only ONE rate cut this year because he is less confident about the trajectory of inflation. As the market digests these comments, we will look for more clues as there are Fed speakers this afternoon & later this week.

EURO: The ECB has a tricky task ahead, with the Eurozone economy broadly stagnant and inflation appears to be falling but unconvincingly. The interest rate cut by Switzerland last week has made many assume that the ECB will also cut rates soon, which continues to pile pressure on the euro, pinning €/USD around 1.0800.

 This week’s ECB speeches (today) will be closely watched for indications of future rate moves. EUR/USD has traded in a broad range of 1.0700 – 1.0900 recently, and last week failed to break out of this range, sitting at 1.0820 this morning.

GBP: Sterling lost ground through last week after Governor Bailey insisted that rate cuts were ‘in play’ in 2024. After the Bank of England left rates on hold last week, the markets now expects 3 rate cuts in 2024 and possibly even a cut before the USA, in June.

 The Bank of England vote saw 8 members vote for unchanged rates, and one member for a rate cut. This is in contrast to last month which saw 6 voting for unchanged, 2 for a hike and 1 for a cut.

 GBP/USD bore the brunt of the move, tumbling to 1.2600 levels after being near 1.2800 last week.

 GBP/EUR also fell, sitting at 1.1650 this morning – a break through 1.1600 could see further losses.

·         Monday: ECB Lagarde speech / US Fed speakers

·         Tuesday: German Confidence / US House Price data

·         Wednesday: AUD Inflation / ECB Speakers / EU Consumer Confidence

·         Thursday: EU Retail Sales / UK GDP / German unemployment / US GDP

·         Friday: US Inflation / Fed Chair Powell speaking