USD weakening continues - what's ahead this week?

GBP: Continuing to out-perform as the Bank of England has suggested that NO interest rates should be expected in the near-term. The UK is not replicating other Central banks by cutting rates as inflation (particularly service-sector inflation) remains sticky. GBP/USD and GBP/EUR at 2yr highs and GBP/USD has moved 9.75% since Sep23.

EUR: Lacklustre, as the market expects more rate cuts in 2024. However, President Lagarde yesterday morning hinted that these cuts will not continue, emphasizing the need to keep monetary policy restrictive and that inflation may rise into the end of 2024.

 This kept EUR/USD around 1.1200. Recent inflation data from Germany, France and Spain have all shown inflation is easing, allowing conditions to reduce interest rates – theoretically weakening the €€. Messaging from the ECB in the coming weeks will be hyper-important.

USD: Weaker. The Fed cut rates by 50% and this has been enough to spook markets and scare away any buyers of USD for the time-being. GBP/USD has trade above 1.3400 – considering it was trading at 1.2400 in April, these are volatile times for the USD.

 Friday’s all-important US employment data is the main focus of the week, but there are some Fed speeches and 2nd tier employment data beforehand.

China: Recent data has underperformed by orders of magnitude, including yesterday’s Manufacturing data. Youth unemployment in China has hit a record high for the 2nd month at 18.8% - admittedly it does not include university students, but it is a very worrying trend on top of very weak data.

The Central Bank has therefore announced an enormous raft of measures to support the economy and to ease credit conditions. These announcements have buoyed the stock market, but it remains to be seen if it can stop the downward trajectory of the economy.