Markets await further clues for interest rate direction
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Daily Currency Update
In Europe, German GDP figures fell by 0.3% in Q4 2023. Thus, their economy ended last year in negative territory and looks to be similar in Q1 of this year. Additionally, the German business sentiment index (IFO) fell to 85.5, consistent with data showing a substantial slowdown in their economy.In the UK the purchasing managers index (PMI) rose for the fourth consecutive month to 53.3 vs a prior print of 52.9.
According to Standard & Poor's chief economist, Chris Williamson, the recent upturn in UK growth has been accompanied by a "surge in optimism for 2024”.
The US market continues to show robust growth. Inflationary price pressures remain alongside solid job creation and wage growth. As a result, markets are pairing back expectations for rate cuts this year. As the Fed made quite clear any rate cuts will be wholly data-dependent.
Key Movers
The Euro remains soft vs the Dollar and Sterling as woes in the German economy weigh on the single currency. As growth continues in the UK and US it is likely that we will see a renewed move lower for the Euro through next week.With continued growth in the UK Sterling remains strong. The FTSE reached a high of 7742 which is a six-week high amid a UK economy that is showing strong signs of recovery. Markets will be keenly watching for any interest rate comments from Bank of England officials.
In the US markets await important inflation data next week. the annual PCE rate is expected to fall to 2.7% vs 2.9% previously. Although not much of a change Fed officials have welcomed a move in the right direction. Importantly this drop will allow Fed officials to move further toward their first rate cut in 2024. Treasury yields remain firm also which should allow the Dollar to remain firm next week.
Expected Ranges
- GBP/USD: 1.2600 - 1.2725 ▲
- GBP/EUR: 1.1650 - 1.1750 ▲
- GBP/AUD: 1.9260 - 1.9360 ▲
- EUR/USD: 1.0750 - 1.0875 ▼