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Currency markets patiently awaited US inflation data in a muted atmosphere
Currency markets have been unusually quiet to begin this week but some juicy economic events promise to shake things up.
First up is US inflation data today, the prospect of which helped to dampen any big moves across Monday and Tuesday. Inflation is a hugely influential data point, hence the preference of many traders to patiently wait and see before they push their chips into the middle of the table.
FOMC minutes (published at 7PM tonight, after European markets are closed) are the second part of the equation. Markets will tear through the details looking for any indication that Jerome Powell has sprouted dovish feathers or developed a hawkish beak. If recent indications are anything to go by, the Fed will look to cut less than previously expected, but don’t count on that being the case based on new evidence.
The pound and the euro both had strong starts to the day batted back slightly by a US dollar rally on Tuesday. GBP/USD and EUR/USD both recorded marginal daily gains, while GBP/EUR climbed by a couple tenths of a per cent.
As the US dollar lost some ground, the price of gold showed no sign of falling back to earth. Gold held on at record levels above $2,350 per troy ounce on Tuesday.
Japanese consumer confidence rose to its highest level since 2019 in April. Japan has recently raised interest rates to 0%, prompting speculation it would soon become less of an outlier among world economies.
The Japanese yen is still well down against the US dollar this month as markets were unimpressed by central bank comments. Japanese stocks rose as the yen approached the levels that are usually associated with government intervention to prop up the currency.
Simon Harris has been elected as Ireland’s youngest Taoiseach. The centre-right Fine Gael leader will fill Leo Varadkar’s post after his shock decision to resign last month. Harris faces local and European elections on June 7th and a general election by March 2025.
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GBP: Under the radar
We haven’t talked too much about the UK this week, but it’s hard to overstate how important Friday’s GDP figures are. There’s a sense of anticipation building already and that’s only likely to grow (and affect currency markets) as the week goes on.
GBP/USD: the past year
EUR: Lagarde to tread carefully
In a research note published yesterday, analysts at TD Securities said they expected the ECB’s Christine Lagarde to be less forceful at Thursday’s interest rate press conference. Lagarde already signalled pretty clearly that she expected rates to be cut in June, which means she could probably stand to be a little more tactful this time.
GBP/EUR: the past year
USD: Even fewer cuts
Markets have been steadily scaling back their bets on rate cuts from the Federal Reserve this year. According to the data, there’s now a 50% chance that there will be three cuts in 2024, down from between six and seven cuts forecast back in January.
EUR/USD: the past year
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