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Sterling began the week making steady progress against the euro and the US dollar.
The pound continued to make gains over its closest rivals on Monday despite the imminent threat of key data. GBP/EUR reached its highest point in several weeks, while GBP/USD briefly passed its highest level in two months.
Bank of England policymaker Ben Broadbent used a speech yesterday to remind markets that policy will be dictated by data above all else. Broadbent gamely tried to tow the party line of strategic ambiguity, but he did suggest we were getting closer to lower interest rates.
“If things continue to evolve with (the Bank of England’s) forecasts… then it’s possible Bank rate could be cut some time over the summer”, Broadbent said.
The Bank could soon be ditching any ambiguity. Tomorrow’s UK inflation figures are widely tipped to drop significantly as lower household energy costs feed into price rises. Markets think the headline figure may have dropped to within a couple tenths of a per cent of the 2% target in April, which would really ramp up the pressure on the Bank.
A host of Federal Reserve officials gave remarks yesterday, with focus sharpened after promising inflation reads from last week. By and large, their comments were noncommittal on interest rate cuts. Michael Barr, for example, merely suggested the reads were encouraging and that the Fed was now well placed to watch the economy closely with rates still high. Far from a bombshell, in other words.
We should get a better indication of the current mood among the FOMC with a similarly packed speaker schedule today followed by FOMC minutes on Wednesday.
Tensions were once again on the rise in the Middle East to begin the week, this time on the news that Iranian President Ebrahim Raisi had died in a helicopter crash. Gold rose into the afternoon session, but fell back slightly on comments from the Fed’s Barr.
The UK’s National Audit Office (NAO) predicted that the government would have to spend £4.7bn to introduce post-Brexit border controls. Plans to bring in border checks on goods coming from the EU faced ‘significant issues’ including critical shortages of inspectors before their introduction last month, the NAO said in a report.
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GBP: The long road to 2%
UK inflation has been on a one hell of a journey. Headline CPI could soon fall to within a whisker of the Bank’s 2% target, having risen as high as 11.1% in October 2022 as the aftershocks of the pandemic and war in Ukraine wreaked havoc on global markets.
GBP/USD: the past year
EUR: Euro stable in quiet week
The euro continues to nestle in a similar range against the US dollar while losing only small amounts to the pound each day. Public holidays across Europe and a light schedule help make this a relatively quiet week, with only Thursday’s PMI figures provoking serious interest.
GBP/EUR: the past year
USD: Through to the other side
The schedule of Federal Reserve speeches today and yesterday more closely resembles a talk show than an economic calendar. However, interest is significant given FOMC minutes arrive on Wednesday and market expectations of rate cuts have recently shifted.
EUR/USD: the past year
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