News

Apr 11, 2024

Dollar rallies following upbeat US inflation data

The USD has rallied in the past 24hrs following a higher-than-expected US inflation figure and rising geopolitical tensions in the Middle East. Data out yesterday afternoon showed that US inflation (CPI) rose 3.5% in March (from the previous year) which was up from February’s 3.2% increase and higher than market expectations for 3.4%. This created a large swing in the probabilities of the Federal Reserve keeping interest rates on hold in June from a 40% chance before the data release to odds of over 80% afterwards. This has made the USD more attractive to investors seeking higher yields which has led to a flurry of dollar buying in the past 24hrs. As a result, the GBP/USD has fallen nearly 1.2% in the past day and now trades towards the lower end of where it’s been in the past 4-months. The EUR/USD has lost around 1.2% since the US inflation data and trades close to a 2-month low (and not far off its 5mth lows). The GBP/EUR remains contained within the familiar ranges we’ve seen this year (circa 1-cent range this year). Next up we have the European Central Bank interest rate meeting this afternoon followed by US producer price data. Then tomorrow afternoon we have the US consumer sentiment numbers.

Mar 22, 2024

Sterling slips following latest BoE meeting

The USD has rallied against the GBP over the past 48hrs following the latest Fed and BoE meetings and an increase in risk-aversion. As expected, the Federal Reserve interest rate meeting on Wednesday night was a bit of a non-event. There was a unanimous vote to keep rates on hold and there was very little change to the bank’s statement, which was an almost word for word replication of the January meeting. Importantly for markets, there was no softening in the Fed’s stance on inflation, with policymakers repeating the line that it does not expect to start easing policy until it has ‘greater confidence inflation is moving sustainably to the 2% target’. Sterling weakened yesterday after a ‘dovish hold’ from the Bank of England. Two of the previous hawks changed their votes this month to favouring no change which meant nearly all favoured to keep things on hold (bar one who voted for a rate cut). The central bank also reiterated that it is ‘not yet at the point’ where it can start cutting rates, although it also added a line to its communications that conditions for lower rates were ‘moving in the right direction’. This week’s UK inflation report for February surprised to the downside and there appears a general sense of optimism among BoE members as to its downward trajectory. Indeed, the BoE sees inflation falling below 2% in a matter of months, which markets believe opens the door to the first rate cut in the not too distant future (three-in-four change for first cut in June). As a result, the Pound has lost ground against the USD with the GBP/USD falling nearly 2-cents in the past 24hrs with it now trading towards a 1-mth low. The GBP/EUR has slipped nearly 1-cent in the past 24hrs and now trades around a 2-mth low. Next up, markets will be watching this afternoon’s Fed Chair Powell speech for any further clues.

Mar 19, 2024

Greenback strengthens ahead of data flurry

The US Dollar is benefiting from today's market sentiment, now trading at a 2-week high against the pound and now into the 1.26s. This precedes a busy latter end to the week of US, EU & UK economic data. Kicking off on Wednesday morning a hat-trick of data is expected to arrive out of the UK including PPI, Retail index, and the highly anticipated CPI (inflation) figures. Later on Wednesday, the ECB's President Lagarde is set to speak to give the latest outlook on the Eurozone economy. This is followed by the Fed interest rate decision in the evening where traders will be listening out for any further insight to when rate cuts will arrive. Thursday morning then sees Eurozone & UK PMI figures for Manufacturing. However, the BoE rate decision taking place at mid-day will look to steal the show. A vote to keep rates unchanged is almost entirely priced in on the markets, however again traders will be keen to see how the voting pattern pans out across the MPC, and very importantly as to whether the traditionally hawkish Catherine Mann continues to vote in favour of a rate hike, or change tune to keep rates at 5.25%. Notably, we then have US Manufacturing PMI's in the evening to complete the trifecta. To round off the week, UK retail sales for February are set to published in the early hours of Friday, with prediction of -0.3% growth from the same time last year. Finally, later on the Fed's Chair Powell is due to speak to perhaps shed some further light on the policy makers longer term approach to US interest rates post- Wednesday's rate decision.

Mar 8, 2024

FX Market springs back to life. Pound benefits

After a few quiet weeks in the FX market, things have sprung back into life the past few days with major currency pairs breaking out of their recent ranges. Sterling has been one of the biggest winners of these moves. A move out of the USD earlier this week was triggered by Fed Chair Powell’s semi-annual testimony to Congress. He noted that lower rates ‘would likely be appropriate this year’ should the US economy evolve as expected, which has seemingly pushed investors to believe that a June interest rate cut is now firmly on the cards. Coupled with some weaker US services sector and jobless claims data, the USD has remained on the backfoot as the week has progressed. In other news, the Pound took this week’s UK Spring Budget in its stride, as no real surprises were announced, but it still managed to rally to its strongest position against the dollar so far this year, as investors sold the USD en masse. The latest growth forecasts from the OBR also provided some reason for cautious optimism, with modest growth of 0.8% seen in 2024 before expansion accelerates to 1.9% in 2025, which gave investors further reason to buy into Sterling. As a result, the GBP/USD has pushed up around 2-cents in the past week and currently trades around a 7-month high. The GBP/EUR has moved up around 0.7% this week and trades at a 3-week high but not far from the top end of where it’s traded since August 2022. Eyes will now turn to this afternoon’s non-farm payroll report which might dictate how the USD fairs over the coming week.

Feb 15, 2024

GBP on back foot following GDP and Inflation data

Sterling has given up some ground over the past couple of days following the release of the latest UK growth and inflation figures. UK GDP figures out this morning confirmed that the UK slipped into a technical recession at the end of last year, with GDP contracting by 0.3% in Q4 after falling by 0.1% in the previous quarter. Although a technical recession was predicted, the contraction in the last quarter was larger than expected (forecasts were for -0.1%), which shows the impact of tight financial conditions and still-elevated inflation continued to be felt across the economy. Yesterday’s UK inflation numbers (CPI) also surprised on the downside and together these figures may help ease some of the Bank of England’s concerns over the persistence of price pressures. At the same time, however, Tuesday’s UK labour data came in better than expected and forward-looking data such as this suggests the economic downturn is not extending into this year, with activity seemingly picking up at the start of the year. Consequently, although Sterling has lost some ground over the past 48hrs, its losses have been relatively contained so far. Traders appear to believe that the BoE won't be in a rush to cut interest rates anytime soon, with June looking likely the earliest date for a first rate cut. As a result, the GBP/USD is down about 1% from Tuesday’s high and trades close to a 9-day low. The GBP/EUR is down by around 0.7% from Tuesday’s high and also trades close to a 9-day low. Pound traders will keep an eye on tomorrow’s UK retail sales figures but, with investors’ attention seemingly more focused into forward-looking data, markets will be more interested in next Thursday’s UK PMI data releases.

Feb 5, 2024

Dollar rallies after blowout US labour report

The USD has been rallying following a strong US labour market report out on Friday afternoon. The data showed strong rebounds in job creation (+353K jobs vs expected +180K), average earnings (4.5% vs expected 4.1%) and a fresh drop in the unemployment rate (3.7% vs expected 3.8%). This report, along with the Feds pushback against the market’s March rate hike, has forced traders to pare back to near zero chances of a March rate cut by the Fed, which has sent the USD higher. As a result, the GBP/USD has fallen over 2-cents from Friday’s high and now trades at the lowest levels since the 13th December. The EUR/USD has fallen around 1.5% since Friday’s US labour data and now trades close to the lowest levels since the 14th November. Major data releases are relatively sparse this week and further direction may be provided from various speeches by different Federal Reserve policymakers.

Feb 2, 2024

Sterling buoyant following latest BoE meeting

Sterling is relatively buoyant following yesterday’s Bank of England interest rate meeting. Although they hinted at the possibility of interest rate cuts in their statement, they also warned markets this may be a little way off and that more evidence on inflation coming into line would be needed. It seems that committee members will need to see far more signs of disinflation, and probably an easing in wage pressures, before committing to cuts which has reduced market expectations for more immediate aggressive rate cuts and therefore supported the Pound. The vote was a mixed one with six of the nine policymakers voting to keep rates on hold, two to raise rates and one to cut by 0.25%. This is the first time since August 2008, and the early onset of the global financial crisis, that BoE policymakers have voted to both raise and lower the base rate at the same policy meeting. They also revised their growth forecasts upwards (2024 from 0% to +0.25%, 2025 from +0.25% to +0.75% and 2026 from +0.75% to +1%). UK inflation is also seen falling to target in Q2 but expected to rise thereafter and not return to target until the end of 2026. In other news, the USD made gains on Wednesday night as the Federal Reserve appeared to push back on a March interest rate cut. Although they indicated that cuts were on the way, Chairman Powell stated that the Fed’s base case scenario isn’t for a March cut and that more data on inflation would be needed. Initially, the USD rallied following this meeting, however it quickly reversed course yesterday, as markets continue to cling onto the possibility of a cut at the Fed’s next meeting and as worries increase over US regional banks and losses linked to commercial real estate. As a result, the GBP/USD is trading towards the top of the range we’ve seen this year. The GBP/EUR is trading around half a cent off the high we saw last August. The EUR/USD has rallied a cent higher in the past 24hrs and trades at an 8-day high. All eyes will now turn to this afternoon’s US non-farm payrolls report for further clues on the state of the US economy.

Jan 24, 2024

Sterling higher on upbeat UK services data

The Pound has pushed higher this morning following upbeat private sector data and improved risk sentiment. Both UK services and manufacturing sector data (PMI) came in better than expected (53.8 vs 53.2 and 47.3 vs 46.7 respectively). This is further evidence the UK economy is performing fairly resiliently at a time when inflation continues to be stubborn. This might give the Bank of England more flexibility on when to make the first rate cut (i.e. they can leave these high interest rates for longer to allow more time to impact on prices) and hence has supported Sterling this morning. As a result, the GBP/EUR has hit the highest levels since Sept ’23 and the GBP/USD is up nearly 1-cent and close to a 2-week high. Later today, we have the US PMI survey data which may create some further movement in the GBP/USD depending on how far off expectations these come in. That said, movements may be relatively contained if investors opt to wait until tomorrow’s US growth figures (GDP) before taking any large positions.

Jan 17, 2024

GBP rebounds following hot UK inflation data

The Pound has claimed some ground back following the latest UK inflation figures. The price data came in higher than expected, edging upwards for the first time since last February (4.0% vs. an expected 3.8%), while the core measure (5.1% vs. 4.9%) also increased at its fastest monthly pace since last May. This will be unwelcome news for UK households, who will once again be dealing with elevated prices and the prospect of higher interest rates for longer. The chances of a May rate cut from the Bank of England are now around 50% versus odds of over 80% last night. The Bank of England may need to see more evidence of a downtrend in both inflation and wages before it can signal lower rates ahead, so we may have to wait until at least the June BoE meeting before we see the first interest rate cut. This could provide some underlying support, and potentially limit any major downside, for Sterling in the short term. Across the pond, the market’s aggressive bets in favour of Federal Reserve interest rate cuts sent the USD to a one-month high against its major peers yesterday. The US Dollar Index ended the London trading yesterday around its strongest position since the 13th December, as investors are back in doubt to whether the Fed will lower rates after its March meeting. As a result, the GBP/USD has recovered most of the losses from yesterday and has moved around 0.75 cents higher since the UK inflation release. The GBP/EUR has risen around 0.5% this morning and now trades close to a 5-week high. Next up we have US retail sales this afternoon and UK retail sales Friday morning.