US Federal Reserve leave rates unchanged and suggests a slightly softer forward outlook
Daily Currency Update
In Europe, several key European Central Bank council members including President Lagarde have cited lower inflation in the eurozone adding to speculation that the bank is preparing for their first of several rate cuts this year. Lagarde also mentioned wage inflation falling sharply which is a key metric for the ECB when considering interest rate policy.Similarly to the ECB the UK has seen softer inflation data this week prompting investors to renew speculation on the timing of the Bank of England's first rate cut this year. Markets now expect that when they decide on interest rate policy later today, they will leave rates unchanged, but the rhetoric post-meeting could be considerably more dovish which will increase downward pressure on the Pound.
The Federal Reserve last night left interest rates unchanged and guidance suggested inflation is not falling fast enough to warrant imminent rate cuts. Markets are still pricing in 75 basis points of cuts this year and that remains. After their announcement, the Dollar weakened slightly.
Key Movers
The euro remains soft, and this is simply because markets predict they will be the first central bank to lower rates this year. As borrowing costs fall the value of the euro normally falls in tandem. As Germany's economy continues to sputter it is weighing on the entire Eurozone and economic data will be watched closely for signs that the ECB is readying itself to start cutting rates.The Pound is likely to come under renewed pressure as the Bank of England meets this evening to set interest rate policy. Although the first-rate cut is expected in August this year recent inflation data will have the markets watching the guidance the Bank of England offer the timing of rate cuts.
The outlook for the US economy has been raised by the Federal Reserve. They now see 2024 growth at 2.1% vs the 1.4% predicted in January of this year. Fed chair, Jerome Powell said that recent strength in consumer price inflation data that the committee's outlook is for inflation to continue falling this year albeit on a bumpy road. This may temper market expectations for rate cuts this year.
Expected Ranges
- GBP/USD: 1.2740 - 1.2840 ▼
- GBP/EUR: 1.1650 - 1.1750 ▼
- GBP/AUD: 1.9250 - 1.9350 ▼
- EUR/USD: 1.0870 - 1.0970 ▼