Friday's price action proved to be a continuation of Thursday's with USD continuing to gain and GBP weakening across the board. GBP was dealt a further blow in the morning after Governor Bailey commented rate cuts are in play at future meetings. The morning's better-than-expected UK retail sales were largely ignored.
Fed Bostic spoke late on Friday suggesting that he only sees one rate cut by the Fed this year – pretty hawkish.
*Daily move - against G10 rates at 7:30am, 25.03.24
** Indicative rates - interbank rates at 7:30am, 25.03.24
The economic docket is pretty quiet this week with the only major release being core PCE inflation numbers from the US on Good Friday which are expected to come in firm, likely to support USD. Markets will of course be closed on this day. So market moves this week will most likely be caused by end-of-month and quarter flow as well as comments made by a host of central bank speakers this week, starting with ECB Holzmann and BoE Mann. Mann was one of the members from the BoE who changed her latest MPC vote from electing for rate hikes to holding rates; she will likely stick to her hawkish stance however that rates will need to stay higher for longer.
Early morning FX flows are seeing USD slightly weaker after both CNH and JPY gained after respective authorities moved to quell the weakness in both currencies last week. We remain wary of additional GBP weakness on the basis of dovish repricing on rate expectations.
After a stellar start to the year for GBP, the currency took a blow last week as dovish repricing on rate expectations saw the chances of a rate cut in June rise from 50% to 85%. So far this year GBPEUR has hit the 2023 highs without any follow through and it seems this level will be a firm resistance for the currency pair. GBPUSD is clinging onto the 200-day moving average for support.
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