Sterling Hits Weekly High Versus Dollar To Test $1.27 Handle
Pound hits weekly high versus Euro
The Pound posted small gains against both the U.S. Dollar and Euro yesterday, with Cable (GBP/USD) edging higher as investors prepared for today's market-moving US CPI release. At the time of writing the GBP/USD exchange rate was trading at $1.2684, up approximately 0.2% from Tuesday’s opening rate. The U.S. Dollar struggled to gain ground on ahead of the Federal Reserve's looming monetary policy update. In the absence of market-moving data, the British Retail Consortium’s (BRC) latest sales monitor for March served to buoy GBP, amid signs of improving retail activity in the UK. The BRC’s monitor found that retail sales leapt by 3.2% last month, surpassing market expectations of a 1.8% increase and reporting the strongest growth since August 2023. The figures also showed a notable rebound from February’s one year low of 1%. The growth was attributed to increased domestic spending over Easter, as households throughout the UK begin to feel an easing of cost-of-living price pressures.
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EUR: Room to correct even without CPI and ECB shocks
The two-year EUR:USD spread has shrunk modestly since Monday, while remaining significantly wide at -143bp. According to ING Bank, they have argued that EUR/USD rallies looked hardly sustainable given the backdrop of a hawkish repricing of Fed rate expectations, and there is still room for EUR/USD to fall in the near term – even if the U.S. CPI and ECB announcement match market expectations.
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Dollar firm ahead of US CPI release
The Dollar was in consolidation mode in this mornings session ahead of a key inflation report due later in the day. The main market focus today is U.S. consumer price inflation for March, which traders have been eagerly awaiting for hints on the Fed's policy outlook. The inflation data follows a strong jobs report last Friday that blew past forecasts, raising questions on how soon and how much the central bank will cut rates this year. Futures traders reduced bets to the lowest level since October, around 60 basis points in rate cuts this year, LSEG data showed on Monday, amid evidence of continued strength in the U.S. economy. Ahead of the data, U.S. interest rate futures set the odds of the first cut occurring in June at about 60%, up from 51% on Monday, according to CME Group's FedWatch tool, although the possibility of a hold has bumped up to 40%.
Data 13.30: Core CPI m/m expected 0.3% from 0.4%, CPI m/m expected 0.3% from 0.4% & CPI y/y expected 3.4% from 3.2%. 19.00: FOMC Meeting Minutes & Federal Budget Balance. Speakers 13.45: FOMC Member Bowman. 178.45: FOMC Member Barkin.