Pound slides as mixed data prompts BoE rate cut bets
The Pound began last week’s session on unsteady footing, as a lack of impactful data left GBP vulnerable against its peers.
Softer-than-expected jobs data began to spark renewed Bank of England (BoE) interest rate cut bets on Tuesday. Wage growth in the three months leading to January cooled, while unemployment unexpectedly ticked higher, weakening the Pound.
Sterling continued to struggle in midweek trade, despite a rebound in UK economic growth. January’s GDP data printed in line with forecasts, showing an expansion of 0.2% on a monthly basis. However, analysts warned it masked underlying weakness, preventing GBP from capitalising on the return to growth.
Towards the end of the week, data releases were few and far between. This left the Pound to trade in tandem with a wavering market mood, sapping sentiment towards it. Additionally, the BoE found that consumer inflation expectations hit a three-year low, sparking additional rate cut bets.
This week, there will be a couple GBP data releases of note. Up first will be the UK’s latest inflation print. Headline and core inflation are both forecast to have cooled in February, which could prompt GBP to slip.
The Bank of England will then announce its latest interest rate decision on Thursday. The focus here is on the timing of when the BoE will begin to cut interest rates. If they indicate that a cut is on the horizon, Sterling may slide.
US Dollar volatile amid accelerating inflation
The market mood began on a bearish note last week, allowing the US Dollar to recoup some of its losses from the previous session. However, anticipation for the latest US inflation data capped its upside potential.
Headline inflation surprised to the upside in February, which prompted investors to delay their bets on Federal Reserve rate cuts. While the majority still view June as the likely starting point, persistent inflation is giving some investors pause.
This view served to undermine the ‘Greenback’ in midweek trade, despite a risk-averse market mood.
However, a rise in US producer price inflation last month brought a June cut into question once again. With PPI accelerating, investors dialled back these bets which strengthened USD exchange rates.
Friday saw the US Dollar consolidate its gains, amid a downbeat market mood. However, US consumer confidence edged lower, limiting any upward movement.
The Federal Reserve is set to end its blackout period and unveil its latest interest rate decision on Wednesday. Much like the BoE, the focus here will be on the timing of rate cuts. If the Fed opens the door to this possibility, USD may weaken against its peers.
Euro sinks amid dovish ECB comments
Subdued trade struck the Euro at the beginning of last week, with macroeconomic releases in short supply.
Confirmation that German inflation cooled notably in February pressured EUR on Tuesday. However, as this reading matched the preliminary print the impact was softened.
Risk-averse trade, and a softening US Dollar, allowed the Euro to tick upward in the middle of the week. However, its gains were capped by a significant slump in Eurozone industrial production, which dropped by 3.2% in January.
Dovish comments from a European Central Bank (ECB) policymaker then saw the common currency slump. Yannis Stournaras, member of the ECB’s council, argued that the bank should cut rates twice before it breaks for the summer.
Additional dovish commentary weighed on the Euro on Friday. As the ECB’s Olli Rehn stated the bank has begun discussing when it should begin loosening monetary policy. However, risk-off offs allowed the safer common currency to ultimately gain ground.
Data releases for the Euro are less impactful than its peers this week. However, tomorrow brings the publication of the latest German ZEW economic sentiment index. Will another uptick in morale reflect positively on the single currency?