Euro Tumbles and UK GDP Rises for Second Consecutive Month
GBP
GBP/USD has declined and is currently trading at 1.2492 (interbank), the lowest level since November 2023. GBP/EUR has risen and is currently trading at 1.1722 (interbank).
This morning, there are signs that the UK economy is on the brink of emerging from recession, with output expanding for the second consecutive month in February, and January's figures revised upwards.
The Office for National Statistics reported a 0.1% growth in Gross Domestic Product (GDP) for February, with January's figure revised up to 0.3% from 0.2%.
While the UK entered a recession in the latter part of last year, the first quarter of 2024 is expected to show some growth, with the three-month average growth rate rising to 0.2% in February from zero in January - the highest since August.
February also saw a 1.1% increase in production output and a 1.2% rise in manufacturing, surpassing forecasts.
This data could reinforce the Bank of England's cautious stance on interest rate cuts, although significant growth in the first half of the year is still unlikely.
Today’s Events (GMT):
07:00 - GDP (MoM) (Feb) - Actual: 0.1% vs Forecast: 0.1%
07:00 - Industrial Production (Feb) - Actual: 1.1% vs Forecast: 0.0%
07:00 - Manufacturing Production (Feb) - Actual: 1.2% vs Forecast: 0.1%
07:00 - Trade Balance (Feb) - Actual: -14.21B vs Forecast: -14.50B
EUR
EUR/USD has tumbled and is currently trading at 1.0674 (interbank), marking its lowest level since mid-November 2023. It has experienced around a 1.5% decrease since Monday, its largest weekly decline since mid-2023.
Yesterday, the European Central Bank (ECB) opted to keep its key interest rates unchanged. The euro's decline continued after the ECB suggested a potential rate cut as early as June, in contrast to the Federal Reserve, which is expected to wait until later in the year due to a strong US economy.
ECB officials have hinted at the possibility of rate cuts in June and potentially beyond.
Additionally, German inflation dropped to 2.3% in March, matching the lowest level since mid-2021, driven primarily by lower energy prices and a slight decrease in food prices. This marks the first year-on-year decline in food prices since February 2015. Core inflation, excluding food and energy, slightly eased to 3.3% in March from 3.4% in February.
The ECB's acknowledgment of a divergence from the Fed's stance on rate cuts is contributing to the euro's decline.
Today’s Events (GMT):
07:00 - German CPI (Mar) - Actual: 2.2% vs Forecast: 2.2%
09:00 - ECB Forecast
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11:00 - Eurogroup Meetings
12:00 - ECB's Elderson Speaks
USD
The US dollar index, which measures the currency against a basket of other major currencies, has risen by 0.38% to 105.67, reaching a five-month high. It has surged by 1.3% this week, marking its largest five-day gain since May 2023.
The US Producer Price Index (PPI) for March came in softer than expected, boosting hopes for Federal Reserve rate cuts this year.The PPI rose by 0.2% month-on-month in March, compared to the estimated 0.3%. Annually, the PPI increased by 2.1% year-on-year in the same period, the largest gain since April 2023. Moreover, the Core PPI, excluding food and energy, rose by 2.4% year-on-year, surpassing market expectations.
Fed officials stated yesterday that there was no rush to ease monetary policy. Boston Fed President Susan Collins noted that the strength of the economy and uneven inflation retreat argued against an immediate push for rate cuts.
Long-term US Treasury yields on Friday traded at 4.576%, near a five-month high, as the debt's price fell. Investors in US government bonds, anticipating gains from falling interest rates since early 2023, are now facing a 65-year low with a 10-year annualized return of just 0.6%, according to Bank of America.
Investors are currently pricing in only two rate cuts this year, likely starting in September, according to the CME FedWatch Tool.
Today’s Events (GMT):
09:00 - IEA Monthly Report
15:00 - Michigan Consumer Sentiment (Apr) Forecast: 79.0
19:30 - FOMC Member Bostic Speaks
CAD
USD/CAD is currently trading at 1.3700 (interbank), seemingly stalling from the previous day's late pullback from its highest level since November 22.
The Canadian dollar remained relatively unchanged on Thursday, retracing previous losses as softer US data and comments from Fed policymakers kept hopes of Fed easing alive. However, it remains bearish after depreciating by more than 1% in the last two weeks.
Crude oil prices have risen amidst heightened tensions in the Middle East following a suspected Israeli strike on Iran's embassy in Syria. Brent crude climbed 0.9% to $90.53 a barrel, while US West Texas Intermediate rose 92 cents to $85.94 a barrel.
The Bank of Canada may have contributed to the Canadian dollar's decline by keeping its key interest rate unchanged at 5% for the sixth consecutive time since July.
Furthermore, Governor Tiff Macklem suggested the possibility of a rate cut in June, despite acknowledging rising US inflation. Macklem's previous encouragement for Canadians to take on debt due to low interest rates in June 2020 contradicted the subsequent increase of 475 basis points in rates less than two years later.
Attention now turns to the latest inflation data from Canada for further insights into the Bank of Canada's monetary policy stance.
No significant events are scheduled for today
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