Fed hints hikes may be over
Daily Currency Update
While the Bank of England kept rates unchanged last week.
The vote was split 6-3 in favour of no change, which we see as moderately positive given that some investors were bracing for a larger consensus in favour of no change, and perhaps one vote in support of an immediate cut. The BoE expressed worry about high wage growth and inflation stickiness, and pushed back against the prospect of rate cuts any time soon. Although Pill said, a potential first-rate cut in August 2024 - "doesn't seem totally unreasonable, at least to me."
The focus this week will be on the preliminary third-quarter GDP report, out on Friday. Economists are pencilling in a minor contraction in activity that, if confirmed, may raise concerns over the possibility of a technical recession as early as the second half of this year.
Key Movers
Soft nonfarm payrolls report out of the US on Friday added fuel to these hopes, and nearly every major currency worldwide rallied sharply against the US dollar, as investors celebrated and poured into risk assets.With the major central bank meetings now out of the way, it is clear that the major part, if not all, of the hiking cycle is now over. Attention now shifts to how soon and how far interest rates will be cut, though none of them seem to be in a hurry to do so.
This week will be unusually data-light in the major economic areas, so currency markets should be mostly driven by the aftershocks of last week's Fed rhetoric.
Expected Ranges
- GBP/USD: 1.23116 - 1.23467 ▲
- GBP/EUR: 1.15111 - 1.15215 ▼
- GBP/AUD: 1.89574 - 1.91862 ▲
- EUR/USD: 1.06917 - 1.07193 ▼