Mixed interest rate signals from Central Banks
Daily Currency Update
The pound continues to trade sideways as markets anticipate that interest rates in the US could fall sooner and faster than in the UK. Lending continued support for Sterling. Markets will closely watch employment data due today and Wednesday for inflation figures. The headline inflation number is expected to come in at 3.8% with the core measure down from 5.1% to 4.9%In Europe, Germany’s GDP figure released today showed a fall of -0.3%. Economic development in the Eurozone’s largest economy faltered in 2023. However,, after ECB council member, Dr Joachim Nagel, said that it was simply too early to discuss interest rate cuts and that inflation is still persistently high. These comments lent support to the Euro through trading on Monday. It is also important to note that financial markets are still expecting the first ECB interest rate cut of 25 basis points in April this year.
The US market was closed yesterday for Martin Luther King Day.
Key Movers
Sterling could be affected this week by geopolitical risks after the UK’s heavy involvement in airstrikes against rebel Houthis in Yemen. It is also likely that with growth sputtering in Europe and The UK, we could see renewed strength in the Dollar vs Sterling and the Euro. The general market consensus is that borrowing costs have peaked in the UK but may stay higher for longer given inflation remains high.European economic data makes for bleak reading, which will likely mean that the Euro will struggle to make additional gains from present levels. Mixed signals are being released from the ECB Governing Council lending confusion to the Euro’s direction through January.
In the US markets are pricing in interest rate cuts at an aggressive pace through 2024 but with economic data showing resilience, this may cloud the picture. Several Federal Reserve members are due to speak this week and it will be vital to see whether they concur with market expectations of interest rates falling as fast as is priced in.
Expected Ranges
- GBP/USD: 1.2600 - 1.2750 ▼
- GBP/EUR: 1.1550 - 1.1650 ▼
- GBP/AUD: 1.9100 - 1.9200 ▼
- EUR/USD: 1.0850 - 1.0950 ▼