Central Banks grapple with mixed data and interest rate expectations
Daily Currency Update
Last week UK GDP rose more than expected, with figures showing that the services sector improved as well as developments in production output. Analysts are looking closely to see if the UK entered a technical recession in Q4 of last year. The pound was little changed vs the Dollar and the Euro as markets consolidate.US Interest rates are expected to come lower by 160 basis points through 2024. Markets shrugged off higher than anticipated inflation data and growth that is persistently higher by increasing the amount of interest rate cuts expected this year. As a result, the US Dollar paused its upward momentum last week.
In Europe the ECB Governing council gave mixed signals regarding expectations for interest rate cuts through 2024. As such the Euro drifted sideways vs the Dollar and Sterling last week in anticipation for comments from President Christine Lagarde this week in Davos.
Key Movers
In the UK the data flow picks up this week with employment numbers due Tuesday, CPI on Wednesday, and retail sales due Friday. Services inflation data is expected to come in at 6.1% and although falling it is not near low enough for the Bank of England. This may temper expectations for rate cuts until later this year.In the US recent data has created a murkier picture for interest rate expectations. Growth remains robust and inflation still stubbornly high. Even with this data markets have priced in additional rate cuts for 2024 suggesting there is significant uncertainty for the Dollar’s direction this quarter.
European GDP data is due today and tomorrow sees the release of Germany’s ZEW survey which will be closely watched as the German economy struggles to gain momentum. Markets are pricing in 150 basis points worth of cuts in 2024 which may prove optimistic.
Expected Ranges
- GBP/USD: 1.2625 - 1.2800 ▼
- GBP/EUR: 1.1575 - 1.1675 ▼
- GBP/AUD: 1.9050 - 1.9150 ▼
- EUR/USD: 1.0875 - 1.0985 ▼