Week in Currency - 08/01/2024
BoE and ECB likely to cut interest rates sooner than expected. The US Dollar volatile following job and service sector data.
GBP
Sterling rose on Friday to a two-and-a-half week high against a weakening US Dollar after various business data showed some evidence that Britain's economy was more resilient than feared in December.
Economist have now predicted The Bank of England will cut interest rates faster than previously expected, softening the blow to households from higher mortgage rates by ￡11bn.
Market participants now expect the Bank Governor Andrew Bailey and his colleagues to begin reducing borrowing costs from May and believe rate setters will cut interest rates by 0.25 percentage points at each policy meeting until the base rate hits 3pc by May 2025.
USD
The US Dollar jumped on Friday after data showed the world's largest economy created more jobs than expected last month, suggesting the Federal Reserve would likely be in no rush to cut interest rates over the next few months.
Data showed the US economy generated 216,000 new jobs in December, exceeding the consensus forecast of 170,000. The unemployment rate was steady from November at 3.7%, compared with expectations of a rise to 3.8%, while average earnings rose 0.4% on a monthly basis, against forecasts of a 0.3% gain.
The greenback’s strength was soon offset by data later in the afternoon that indicated the US services sector slumped last month. The Institute for Supply Management (ISM) said its non-manufacturing index fell to 50.6 last month, the lowest reading since May, from 52.7 in November.
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EUR
Inflation across the eurozone rose in December after an increase in energy costs, reversing six months of consecutive falls and easing the pressure on the European Central Bank to cut interest rates.
Figures from the EU statistical agency Eurostat showed consumer prices across the 20-country bloc rose at an annual rate of 2.9% last month, up from 2.4% in November. Economists polled by Reuters had forecast a slightly higher reading of 3% for December.
The figures come amid speculation the ECB will begin cutting interest rates within months amid a worsening economic slowdown across the eurozone, having increased borrowing costs to the highest level since the launch of the euro.
Have a good week
Estuary FX
This week's key data