Pound climbs despite underwhelming Spring Budget
The Pound firmed at the beginning of last week’s trade, as UK Chancellor Jeremy Hunt began to trail investment plans. Funding for the UK manufacturing industry was announced, lifting Sterling.
GBP exchange rates continued to rise on Tuesday, owing to a bullish market mood. This allowed Sterling to shrug off a downward revision to the UK’s services PMI for February.
Hunt then unveiled his Spring Budget on Wednesday, prompting GBP to stumble. While the budget contained growth-boosting measures, the Office for Budget Responsibility (OBR) slashed its inflation expectations in its accompanying forecast.
While a lack of data prevented Sterling from finding its footing on Thursday, Friday saw the Pound begin to climb.
The increasingly risk-sensitive currency rocketed over the session, amid cheery trade. Furthermore, expectations of a divergence between the Bank of England (BoE) and other central banks prompted GBP/USD to strike a seven-month high.
This week, there will be a couple GBP data releases of note. Up first will be the UK’s latest jobs report. January’s figures are expected to report that wage growth remained strong and that unemployment held at a one-year low, potentially lifting the Pound.
This will be followed by the UK’s latest GDP data. January’s figures are forecast to report a 0.2% expansion of growth. As the UK has recently entered a technical recession, signs of improving activity may strengthen Sterling.
US Dollar slides as US jobs market cools
Scarcity of data saw the US Dollar begin last week on unsteady ground. However, cautious trade yielded modest safe-haven flows for the ‘Greenback’ which kept it afloat.
Tuesday saw USD begin to drop following last month’s ISM services PMI, with weaker-than-expected US service sector activity unnerving USD investors.
Job openings in January unexpectedly declined, which saw the US Dollar begin to slide on Wednesday. Furthermore, Federal Reserve Chair Jerome Powell confirmed that the Fed would cut interest rates this year, adding additional pressure.
The sell-off continued through Thursday, as risk-on trade continued to sweep across markets. Additionally, initial jobless claims printed above forecasts, prompting concerns that the US jobs market was beginning to cool.
USD continued to fall sharply on Friday, hitting multi-month lows against its peers. US unemployment unexpectedly jumped to 3.9% in January, prompting aggressive rate cut bets.
The latest US inflation data is due to print on Tuesday, with headline inflation forecast to have held at 3.1%, but core inflation forecast to fall again. Will this stoke Fed rate cut bets and pull the US Dollar even lower?
Euro rocked by ECB decision
Markets began to await the European Central Bank’s (ECB) latest interest rate decision, which stifled the Euro at the beginning of last week.
This was followed by mixed economic data releases on Tuesday. While the Eurozone’s services PMI was revised higher in February, producer price inflation fell more than expected in January. This increased bets on interest rate cuts from the ECB.
However, strong German trade data strengthened the common currency during Wednesday’s session. Exports improved by 6.3% in January, prompting optimism that the German economy could begin to recover.
The ECB then published its latest interest rate decision on Thursday. The central bank kept interest rates unchanged as expected, and left its communication unaltered. However, it slashed its inflation forecasts, leading EUR to weaken.
At the end of the week, the Euro saw its gains capped by dovish comments from ECB policymakers, who indicated an April rate cut could be on the cards. This was offset by EUR’s negative correlation to a falling US Dollar, allowing it to regain some losses.
Looking ahead, January’s Eurozone industrial production data is due to print on Wednesday. Economists expect production to have slumped by 1%, which could dent the common currency.