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Currency Market Update - 13th May 2024

Currency Market Update The last week was pretty volatile for Sterling exchange rates, with the Pound falling prior and following the BoE decision. The simple update is that 2 members voted for a cut which meant that traders have now started to price in the first BoE cut for June - this essentially weakened off the Pound through Thursday.

But the weakness was halted and reversed on Friday morning following stronger than expected GDP numbers from the UK which officially puts the UK out of recession, and also potentially makes a June cut 50/50- now traders will be watching UK data through the month to determine whether a cut will happen before or after the Summer- strong GDP is good, however the UK economy is not without it’s problems and a cut is needed- and it looks like the BoE is looking for a reason to do so.

This week we have a few data releases of note, the first is UK unemployment data, which is unfortunately expected to come out higher, with lower average earnings- which looks like it could weaken the Pound on Tuesday if it comes out this way, Following this release we have EU ZEW economic data which is expected weaker, so this should balance out the GBPEUR price through Tuesday morning. On Tuesday evening we have a speech from Fed Chair Powell which could be market moving if any mention of interest rate cuts come up.

On Wednesday we have EU GDP numbers which are expected positive, this should add some strength into the Euro short term but it will not affect the decision for the ECB to cut rates in June, so the strength could be short lived- later we have U,S inflation data which is expected out lower at 3.4%, if it does come in lower (Last few releases have been high) then it will strengthen the base case for a rate cut and weaken the Dollar.

Thursday is a relatively quiet day- but on Friday we have EU inflation data, we are expecting Core inflation to drop to 2.7% which will back the case even further for an EU rate cut, so we will see the Euro weaken through Friday.

We round the week off tomorrow with the eagerly anticipated Non-Farm Payroll data for The U.S, and as stated yesterday this data set will be scrutinised even more so now in line with inflation before any further decisions on Interest Rate Cuts. The one thing we do now however is that this data release in particular is the most volatile on the market and therefore it could be wise for any USD buyers to make a move before the release.

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