RedFX Update: The week ahead
The week ahead will focus on publication of the last USA interest rate meeting – the focus will be on the TIMING of rate cuts that will affect currency movements through 2024. Economists will continue the debate of how quickly western economies will start cutting rates.
The week is off to a quiet start due to President’s Day in the USA. After last week packed with data - Friday’s US Producers Prices Index showing an improvement, the USD initially strengthened but lost momentum, with EUR/USD ending the week at 1.0775.
USD: There remains an underlying bid for USD due to the troubles in the Middle East and surrounding area. The US economy continues to show strength and although there are lingering inflationary fears it continues to outperform its global peers. Wednesday evening’s Federal Reserve meeting minutes is the near-term focus for the USD.
Mary C. Daly, President of the San Francisco Fed suggested that three rate cuts are a reasonable baseline for 2024
The US Fed is expected to refrain from rate cuts in both March and May, but these minutes will give us more colour.
EURO: The ECB has a tricky task ahead, with the Eurozone economy broadly stagnant and inflation appears to be falling but unconvincingly. The recent weakness (across all sectors) in Germany is exacerbating European weakness. The market will be hoping for signs of a recovery in this week’s German data. It appears that the ECB needs to time any interest rate cuts very carefully.
Additionally, European Central Bank (ECB) Governing Council member Francois Villeroy de Galhau mentioned that there are several reasons why they should not delay the first rate cut.
EUR/USD has fallen throughout February, from 1.0900 to 1.0775 vs USD
GBP: Has fallen during the week GBP/USD is at 1.2620 after having been near annual highs. The reason is that economists believe US will cut rates faster and sooner than the UK. Inflation in the UK is stickier than Europe and the US and there are signs that the UK economy is flatlining at best.
GBP/EUR is attempting to push through 1.1750 but has not done so with any conviction. A light data week follows very poor retail sales and data showing the UK entering a technical recession. It is understandable that the UK press is awash with headlines begging the Bank of England to cut rates to give the economy some relief – however, the Governor has made it clear that rate cuts are not ‘just around the corner’.
The week ahead:
· Monday: USA public Holiday
· Tuesday: AUD Central Bank meeting minutes published / CAD Inflation / NZD Inflation
· Wednesday: US Federal Reserve minutes published / Fed member speech
· Thursday: EUR Activity indices / EUR prices data / German activity Indices / UK services & manufacturing data / USA services & manufacturing data
· Friday: NZD Retail Sales / German activity data / ECB members speeches