Home Daily Commentaries Markets anxiously await inflation data due out of the US

Markets anxiously await inflation data due out of the US

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Wednesday 28 February, 2024

Daily Currency Update

The ECB remains steadfast in its stance that it is simply too early to discuss the timing of interest rate cuts. Yet as we discussed yesterday the markets disagree and anticipate a shift in the ECB's narrative shortly. Recent inflation data has been softer than expected which is welcome but growth, most notably in the German economy, has all but stalled. Figures released by their government predict 2024 GDP expectations have shifted from a forecast of 1.3% to 0.2%. Importantly, this most likely puts the ECB as a front-runner to cut rates first.

The Bank of England faces a dilemma. Inflation is still persistently high, and growth remains subdued with wage inflation not decelerating as much as the MPC would like. Recent three-month wage data showed a 6.2% increase. So, it seems likely that the UK will need to see a sustained drop in inflation across the board before they may consider cutting rates.
In the US forecasts suggest 2024 may bring disinflation. With real GDP growth comfortably above 3% and an economy that is also operating at full employment the Federal Reserve has enough economic indicators to maintain present interest rate levels until PCE data reveals a further slowdown in inflation.

Key Movers

If the aforementioned synopsis is correct for Europe and they are first to begin cutting rates this could lead to sustained Euro weakness vs the Pound and Dollar through the rest of this year. However, as markets await PCE inflation data the Euro remains firmly rangebound between 1.0750 and 1.0850.

The Pound has been mirroring the Euro in that it has also been range-bound before US inflation data due today. It has been trading between 1.2625 and 1.1725 vs the Dollar and markets will look for a breakout after US PCE data.

The US Dollar, like the Euro and Pound, has been very subdued this week before the release of all-important inflation data due today. If the inflation number is high the Dollar could rally across the board but if the PCE number comes in softer than expected this will increase expectations of US rate cuts perhaps before the Summer which could push the Dollar lower.

Expected Ranges

  • GBP/USD: - ▲
  • GBP/EUR: - ▲
  • GBP/AUD: - ▲
  • EUR/USD: - ▲

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.