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Markets delay Federal Reserve rate cut expectations to September
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Daily Currency Update
In Europe, retail sales figures surged by 0.8% in March, a significant increase from the previous month’s 0.3%, marking the most substantial uptick in activity since 2022. This positive momentum in consumer spending bodes well for the single currency. However, with interest rates expected to decline next month, it’s more probable that the Euro will remain within a narrow range throughout May.In the UK, Bank of England Governor Andrew Bailey stated that the Monetary Policy Committee aligns with market expectations for 2 to 3 rate cuts this year. There’s currently a 50/50 chance of these rate reductions commencing in June, and as market expectations intensify, the Pound could experience downward pressure.
Minneapolis Federal Reserve President Neel Kashkari remarked that it’s premature to gauge whether inflation has ceased its decline, sparking renewed speculation that the US may maintain higher rates for a longer duration compared to their European and UK counterparts. This development has bolstered the Dollar overnight.
Key Movers
Recent upbeat data in Europe has led markets to assume that the ECB’s first rate cut in 2024 will occur this June. With minimal economic data scheduled for release this week in Europe, market attention is likely to shift towards commentary from ECB officials regarding the pace and magnitude of interest rate cuts throughout 2024.Speculation that the UK will initiate rate cuts before the Federal Reserve in America has been exerting pressure on the Pound this week. It is anticipated that the UK will embark on its rate-cutting cycle in August this year, amid an economy showing signs of stagnation and inflation data that, although declining, is not meeting the Monetary Policy Committee’s desired pace.
In the US, markets are confident that the Federal Reserve will implement rate cuts but have adjusted their timeline to the third quarter of this year. Presently, a US rate cut is perceived as 82% likely to occur in August, with a total of 44 basis points of cuts already priced into the market for this year. Hawkish rhetoric from Fed officials has been providing support to the US Dollar throughout the week.
Expected Ranges
- GBP/USD: 1.2440 – 1.2525 ▼
- GBP/EUR: 1.600 – 1.650 ▼
- GBP/AUD: 1.8960 – 1.9030 ▼
- EUR/USD: 1.0710 – 1.0770 ▼
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