Dollar Gathers Momentum

Pound acts as fulcrum for weak EUR, assertive USD

GBP/USD remains defensive below $1.2650 in European trading on Thursday. The hawkish tone from Fed Governor Christopher Waller keeps the US Dollar afloat amid a cautious trading environment ahead of key US data releases and the Good Friday trading lull.

UK GDP was released this morning, and arrived just as predicted - leading to very little market movement. And while the figures were as prophesied, they paint a dire picture. The UK economy contracted by a -.02% year-on-year. The delicate balance of 'economic green shoots' vs a soft inflationary 'landing' will be made much of as we enter end game for the major central banks.

UK GDP QOQ and YOY - released earlier today

EUR experiences the doldrums

GBP/EUR has retreated from highs just above €1.1700 to the €1.1650 area following two successive weeks of declines, driven in part by a muted UK inflation release and the March Bank of England policy meeting.

"Pound Sterling weakened after the Bank of England's voting landscape revealed the last remaining hawks, who were still in favour of another rate hike last month, have now also moved to a hold," says David Alexander Meier, an analyst at Julius Baer.

Market odds of a June interest rate cut from the Bank rose after Mann and Haskel dropped their votes for further rate hikes, while the Bank said it could cut rates from current levels without the risk of boosting inflation.

"This was seen by markets as a shift that allows for an earlier BoE policy easing. We argue that it could be premature to expect earlier BoE cuts," says Meier. "A rebounding economy and positive real wage growth still argue for caution."

No major data

Dollar on the front foot....for now

Dollar weakness in the second half of 2024 is a high-conviction call for economists at Wells Fargo, one of the biggest main street lenders in the United States.

In a monthly financial forecast note, Wells Fargo says it will stick with its call for US Dollar depreciation later in 2024.

"US economic outperformance and an 'on-hold' Federal Reserve has supported the greenback in early 2024. However, looking forward to later this year, while we do expect the US to avoid recession, we still anticipate slower growth as the year progresses," says Nick Bennenbroek, International Economist at Wells Fargo.

At the start of the year, Dollar weakness throughout 2024 was a consensus call among institutional economists, but an early achieving US economy, inflation heading in the right direction and a strong Federal Reserve upended this call.

The result at the start of the second quarter is the Dollar is 2024's best-performing currency.

US GDP, Initial Jobless Claims and Personal Consumption Expenditures