Pound Slumps As BoE Opens Door To Rate Cuts
GBP loses momentum post bank rate decision and retail data
GBP: The Pound (GBP) dropped against most major peers on Thursday, in the wake of the Bank of England’s latest interest rate decision to stick at 5.25%. While the Bank of England (BoE) kept rates unchanged for the fifth consecutive meeting as expected, eight of its nine policymakers voted for this choice, marking a shift in the BoE’s overall thinking. With the more hawkish members, Catherine Mann and Jonathan Haskel, now in favour of a neutral stance, this appeared to be the overriding consensus. Furthermore, the BoE appeared to open the door to future interest rate cuts, which suggested that such a move is likely going to be a key point of discussion at its next meetings. Similarly, the BoE recognised that even if it were to cut rates, they would remain restrictive. The UK Retail Sales showed no growth over the month in February vs. -0.3% expected and 3.6% registered in January, according to the latest data published by the Office for National Statistics (ONS) on Friday. The Core Retail Sales, stripping the auto motor fuel sales, rose 0.2% MoM vs. -0.1% expected.
Data:
Retail Sales (MoM)(Feb): 0%
Retail Sales (YoY)(Feb): -0.4%
GBP/EUR exchange rate softens as BoE leaves rates unchanged
EUR: Following a dovish tilt from the BoE at its latest interest rate decision GBP/EUR has dropped off. At the time of writing, GBP/EUR traded at around €1.1640, a fall of roughly 0.25% from Thursday’s opening rates. The Euro struggled to find its footing during Wednesday’s trade, following the release of mixed preliminary PMI data for the Eurozone’s private sector. The readings for March showed that the Eurozone’s manufacturing sector activity declined more than expected, with the index printing at 45.7 rather than seeing an improvement to 47. However, the bloc’s service sector improved above expectations, with the reading rising to 51.1 from 50.2. This prevented the common currency from falling against its peers, and lent some cushioning during the session. For the Euro, the primary driver of movement is likely to be March’s German IFO business climate index, due to print on Friday. While this index is forecast to increase on a monthly basis by economists, it may remain near a three and a half year low. With pessimism around the German economy unlikely to fade in the near future, this could pressure the common currency. Elsewhere, European Central Bank (ECB) Chief Economist Philip Lane is due to speak on Friday. If he delivers dovish remarks, EUR may slip further.
Data:
ECB's Lane Speech: 17:00
Import Price Index (MoM)(Jan): 0%
Import Price Index (YoY)(Jan): -5.9%
US Dollar extends recovery ahead of key Fed talk
USD: The US Dollar staged an impressive comeback following the selloff seen late Wednesday. USD Index gained more than 0.5% on Thursday and retraced the post-Fed decline. Early today, the USD Index continues to push higher and was last seen trading at its highest level in three weeks above 104.00. Later in the day, Federal Reserve Chairman Jerome Powell will deliver opening remarks at the FED Listens event. Several other FED policymakers are scheduled to deliver speeches ahead of the weekend as well. The USD started to outperform its rivals in the American session on Thursday, boosted by the upbeat macroeconomic data releases. The PMI surveys showed that the economic activity in the private sector continued to expand at a healthy pace in early March, while input price pressures continued to strengthen. Additionally, the Initial Jobless Claims edged lower to 210K in the week ending March 16. GBP/USD saw a different outlook in the early trading hours of today, having dropped -0.56% to $1.2587 the lowest rate since 20th Feb 2024.
Data:
Fed's Chair Powell speech: 13:00pm
Fed's Barr speech: 16:00pm