Currency markets saw a rangebound trading session yesterday ahead of today’s key US GDP data for Q1 2024, where growth is forecast to dip from 3.4% to 2.5%.
Sterling managed to eek out small gains despite weaker than forecast CBI manufacturing data, as recent hawkish Bank of England comments continue to push back rate cut hopes.
The euro also made gains after the release of the latest German IFO business climate index rose more than expected. The single currency was also supported after ECB’s Nagel stated a June rate cut would not necessarily be followed by a series of further rate cuts.
*Daily move - against G10 rates at 7:30am, 25.04.24
** Indicative rates - interbank rates at 7:30am, 25.04.24
All eyes are firmly focused on US Q1 GDP data due out later today, and tomorrow’s Core PCE report (Fed’s preferred measure of inflation).
At the start of the year markets were pricing in the US to cut interest rates 6-7 times, this has now collapsed to only 1 or 2 as the underlying strength of the US economy continues to defy market forecasts for a rapid slow down, both in growth and inflation.
With the US elections due in November, markets are just beginning to look at how a Trump Presidency would affect the US dollar. Early indications are a Trump Administration will repeat their calls for a weaker currency in order to increase US export competitiveness. During his last tenure Trump repeatedly called on the Fed to cut interest rates to lower the value of the dollar, citing the EU and Japan as deliberately keeping their currencies weak in order to boost overseas trade.
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