The USD continued to claw out gains on Friday as stocks sold off, as more in the market believe there will be less rate cuts by the Fed this year, as well as seeing some risk aversion going into the weekend. With new 2024 lows on GBPUSD and EURUSD and a breakout of recent ranges, markets may well have more conviction to trade each pair lower.
*Daily move - against G10 rates at 7:30am, 15.04.24
** Indicative rates - interbank rates at 7:30am, 15.04.24
Focus falls on the UK this week with the release of our jobs, inflation numbers, and retail sales. For GBP to benefit we will need to see the numbers track recent US numbers. Otherwise, a weaker job market and improving inflation will add to GBP’s recent woes. This week will also see seven BoE speeches, beginning with Breeden today.
US retail sales are due this afternoon which will likely reveal subdued spending in March, with firms reporting a relative moderation in consumer demand – could see some minor USD weakness on this.
Following the missile attacks on Israel over the weekend, there has been limited impact on the FX markets, where typically we would have seen flight to safety and USD in demand. The limited loss in life and some restraint in retaliation is perhaps the reason.
Given the USD gains last week and projected divergence on monetary policy, it seems that both GBPUSD and EURUSD could well be vulnerable to further downside.
This week will be an important week for UK data and the implications for the Bank of England’s rate cut cycle. Currently markets are pricing in a 50% cut in June, with August priced at 96% probability. Below consensus on wage pressures and inflation, particularly the services component will likely firm up the odds of a June cut and add to further declines on GBP.
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