GBP: Will the BoE change BoE rate hike path?
EUR: Unemployment figures in focus this week
USD: Fed expected to hike rates
In a week vacant of any data points or BoE member comments, the pound suffered on risk adverse sentiment in the markets dropping to the lowest level versus the US dollar since July 2017.
The focus this week will be on the Bank of England rate meeting on Thursday. We expect a 25-basis point hike by the Bank with 8 votes in favour of the hike vs 1 dissenter. The accompanying rate statement could well be key following Governor Bailey recent comments that the Bank of England is walking a ‘narrow path’ between growth and inflation. With recent data suggesting a slowdown in the economy as the cost-of-living crisis takes hold; then there could be a surprise in the Bank's rate statement should they indicate a slowdown in the pace of hikes. If so, then expect the pound to dropOther data this week from the UK comes in the form of PMI’s Tuesday, Thursday and Friday for hints of any slowdown in the manufacturing, services and construction sectors.
Concerns of Russia cutting off gas supplies to mainland Europe weighed on the euro last week causing EURUSD to drop to the lowest since January 2017. Data last week also showed that Inflation in Germany rose to the highest since 1981, prompting some support for the euro as markets focused on the outside chance of rate hike by the ECB in July.
Markets will be looking at data points this week for this notion of a rate hike in July to support the euro. Today sees the release of the unemployment rate forecasted to improve to 6.7% and on Wednesday we’ll see the release of PMI figures as well retail sales for the month of March. Christine Lagarde will also be speaking today although not much surprise expected from her speech.
Profit taking on the US dollar was evident on Friday ahead of key data from the US this week. Last week we saw the US dollar index hit the highest for a decade on safe haven flows amidst geopolitical tensions as well as growth concerns in China.
Leading into the Fed rate decision on Wednesday evening we could well see a continuing sell off on the US dollar as market reposition themselves ahead of the Feds expected announcement of a 50-basis point rate hike and formal announcement of its quantitative tightening programme. Data on Thursday showed that the economy shrank by 1.4% but with inflation over 8% and a tight job market, the Fed seem ready to begin its monetary tightening programme.
The other key data this week will be the job figures on Friday. Given how important the US job market has been in the decision for the Fed to raise interest rates, markets will look to take cues to see if the job market is continuing to tighten.
The Reserve Bank of Australia sent a hawkish signal to the markets by raising interest rates by 25-basis points to 0.35%. The RBA also signalled that they will start their cycle of quantitative tightening. The markets were expecting only a 15-basis point hike so no surprise to see the AUD strengthen off the bank of the announcement with the markets elevating their year-end interest rate forecast up from 2.60% to 2.80%
Today's Interbank Rates at 09:25am against sterling movement vs Friday.
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