Volatility is back amid increasing global tensions
In mid-March, the UK and US held rates steady but indicated that cuts are on the way – this may no longer be the case, but the ECB looks set to cut in June.
USD: The USD has been volatile with growing expectations of a delay in rate cuts from the Fed pushing EUR/USD lower, through the crucial 1.0700 level last week – taking the USD to it’s strongest level since November23. There are plenty of Fed speakers throughout the week to give us more guidance & possible volatility.
Support for the USD continues amid increased global tension and the prospect of a larger-scale war in the Middle East. Retail Sales later today will be closely watched, following on from recent strong economic data and persistent inflation (last Thursday’s core inflation showed yr-on-yr increase).
EURO: The ECB has a tricky task ahead, with the Eurozone economy broadly stagnant and inflation appears to be falling, but unconvincingly. Last week saw President Lagarde’s strongest hint yet of a June rate cut, which looks to be before the USD and this has kept EUR/USD lower, currently around 1.0650, but hit lows of 1.0620 on Friday. We have Eurozone Industrial Production later today.
This morning, Gediminas Šimkus, a member of the ECB Governing Council, stated that there is a greater than 50% likelihood of more than three rate cuts occurring this year, as per Reuters.
GBP: Sterling lost ground against a very strong USD (1.25% lower last week), but held onto gains vs the EURO, around 1.1700 for GBP/EUR
In May, Governor Bailey insisted that rate cuts were ‘in play’ in 2024 - the markets now expect 3 rate cuts in 2024, but have reined in recent aggressive pricing. GBP/USD has dropped fron1.2800 in early March to 1.2500.
JPY: JPY continues to weaken, with USD/JPY at 3-decade highs near 154.00. The Japanese Yen continues to be undermined by the BoJ’s uncertain outlook about future rate hikes. Intervention fears and persistent geopolitical tensions could help limit losses for the safe-haven JPY.
The week ahead:
· Monday: US Retail Sales
· Tuesday: China GDP & retail Sales / UK employment / UK Governor Bailey speech / German confidence data / EUR confidence data / CAD inflation / US Fed speeches
· Wednesday: NZD inflation / UK Inflation / UK Producer Inflation / EU Consumer Price Index / UK Governor Bailey speech
· Thursday: AUD employment / ECB speech / US Fed speeches
· Friday: UK Retail Sales / Fed speech