Week in Currency – 11/03/2024

Sterling climbs as pressure mounts on dollar and euro with interest rate cuts on the horizon.

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GBP

Sterling rose on Friday against a weakening euro and dollar after signs the European Central Bank and US Federal Reserve might be closer to cutting interest rates than the Bank of England. Sterling’s rise, however, was less a product of the UK fiscal outlook but more related to the pressure on the dollar and euro. Markets are pricing in a BoE interest rate cut in August, compared to a first Fed cut in June.

Jeremy Hunt, UK Finance Minister, delivered his budget on Wednesday but sprung no surprises on markets. In what was possibly his last fiscal statement before an election expected later this year, Hunt offered voters a raft of tax cuts, including to the rate of national insurance, in a bid to woo them back to Prime Minister Rishi Sunak's Conservatives. Hunt did explain Britain’s economy is forecast to grow by 0.8% this year.

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USD

The dollar slipped across the board on Wednesday after Federal Reserve Chair, Jerome Powell, said continued progress on inflation "is not assured," though the U.S. central bank still expects to reduce its benchmark interest rate later this year. "If the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year," Powell said in remarks prepared for delivery to the House Financial Services Committee.

The dollar again weakened on Friday after unemployment rate crept up to the highest rate in two years last month, despite more jobs being created than expected. The jobless rate rose to 3.9%, up from 3.7% in January, despite 275k jobs being created compared the analysis expected figure of 200k.

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EUR

The European Central Bank left its key interest rate unchanged for the fourth time in a row at Thursday’s meeting. But the revised inflation outlook led investors to expect the first interest rate cut in June. The interest rate decision had been widely expected, and two thirds of economists now predict a first rate cut in June. The main refinancing operations and the interest rates on the marginal lending facility and the deposit facility were left unchanged at 4.50%, 4.75% and 4.00% respectively.

In the fourth quarter of 2023, seasonally adjusted GDP remained stable in both the euro area and the EU, compared with the previous quarter, according to an estimate published by Eurostat, the statistical office of the European Union. In the third quarter of 2023, GDP had decreased by 0.1% in the euro area and had remained stable in the EU.

Have a good week!

Estuary FX

This weeks key data