Last week saw the dollar prevail in a market that is still heavily influenced by interest rate decisions.
Barring GDP figures showing an expansion of 0.1% in the UK economy month-on-month for February, the pound was left at the mercy of influential data pieces from other jurisdictions.
The eurozone saw its first interest rate decision following the inflation data released the week prior that indicated price pressure was driving towards the ECB’s 2% target.
Analysts were expecting a shift in the monetary policy approach seen by the ECB and it was very much anticipated that future rate cuts would be discussed.
What came as a shock, however, was the ECB President Lagarde stating that there was a divide within the central bank and some policymakers had argued for an immediate cutting of interest rates.
This shock announcement solidified the devaluation the euro had seen in the lead up to last Thursday’s meeting and the euro maintained the significant losses it had incurred against both the pound and the USD.
Jorg Kramer, chief economist at Commerzbank in Frankfurt has stated that “what the ECB has done today comes very close to a pre-commitment to cut rates in June” and that “it will take a lot of very bad inflation and wage data for them not to do that now.”
Market expectations are that the ECB is more likely than not to cut rates as soon as June and could possibly be the first movers in the path back to pre-pandemic interest rates.
In contrast to the eurozone, data from within the US painted a very different picture.
Wednesday’s release of consumer prices by the US Bureau of Labor Statistics found there was an increase in inflation beyond expected.
Markets had been priced in for an increase in inflation from 3.2% to 3.4% with the actual print showing an increase of 3.5% in consumer price year on year for March.
As FED chair Powell has suggested many times before, the FED’s roadmap to slashing interest rates is very dependent on data. The figure, which is 1.5% above the FED inflation target, suggests it may be unwise or difficult for the FED to justify cutting rates as soon as June.
The greenback capitalised on this as investors shift funds from less prospective currencies into the USD, which now seems like it has a greater potential for higher interest rates for longer.
As markets closed for the week, the dollar had taken over 2% from high to low in both its GBP/USD & EUR/USD pairings with the pound prevailing over a softened euro.
ONES TO WATCH
Monday
13:30 – USD – Retail sales (MoM)(Mar)
Tuesday
03:00 – CNY – Gross Domestic Product (YoY)(Q1)
03:00 – CNY – Industrial Production (YoY)(Mar)
07:00 – GBP – Claimant Count Change (Mar)
07:00 – GBP – Employment Change (Feb)
07:00 – GBP – ILO Unemployment Rate (3M)(Feb)
Wednesday
07:00 – GBP – Consumer Price Index (YoY)(Mar)
07:00 – GBP – Consumer Price Index (Mom)(Mar)
07:00 – GBP – Governor Bailey Speech
Friday
07:00 – GBP – Retail Sales (MoM)(Mar)
