RedFX: USD pullback gaining momentum
Inflation data hurt the greenback yesterday and with next week being very light on US data, there may be nothing to stop the trend.
GBP: GDP in February fell to 0% (vs 0.1% expected). Industrial production improved on an annualised basis but fell month-on-month. Governor Bailey gave 2 speeches yesterday which addressed the banking system and quietly repeated his opinion that inflation is gradually slowing. Next week’s employment AND inflation data will give more hints on rates in the UK.
Although the UK is predicted to be the worst performer in the G7, the currency maintains strength – although GBP/EUR has hardly moved from 1.1350 in the last 10days.
GBP/EUR at 1.1350 GBP/USD at 1.2500
EUR: After continued aggressive hikes and rhetoric, ECB President Lagarde remains the most hawkish Central Banker around and this will keep the EURO on the front foot. HOWEVER, consensus seems to be for just a 0.25% rate hike in May given the chaos and fear spread by the collapse of CSFB.
As Reuters says: “The peak in ECB rates is now in sight and that this "last mile" is safer to navigate in smaller steps.”. Depending how this slow-down is communicated, we may see some EURO volatility as the trend changes direction.
USD: At the end of March, we suspected the US Federal Reserve will not keep increasing rates as anticipated, as the Fed raised by 0.25bp but signalled it will slow down and stop raising in the near future. Markets are now pricing a CUT in interest rates by July23.
Yesterday’s lower-than-anticipated Inflation data added fuel to the fire and EUR/USD climbed above 1.1000 this morning.
A falling USD has pushed GBP/USD up to 1.2500 (having been at 1.2250 last week)
AUD: The Unemployment Rate remained unchanged at 3.5% in March and trade data from China was better than expected. AUD strengthened vs the USD with AUD/USD rising more than 0.5% on the day at around 0.6730