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Possibly delayed interest rate falls have powered USD
Overnight, GBP/USD weakened to its lowest level since November 2023. Against the euro, on Wednesday sterling fell to its lowest level for more than a week, from what had been a five-week high, and has been struggling to recover ever since.
The markets have been trying to square the relatively disappointing fall in inflation announced on Wednesday – which boosted sterling – with the governor of the Bank of England’s dovish comments since then. Andrew Bailey said that Wednesday’s inflation data, showing only a small drop in annual inflation to 3.2%, had been predicted by his own analysts and he was confident that next month would show a more significant drop.
There was an absence of data in the UK and Europe yesterday, which explains sterling’s lack of movement, but there was divergent news on prices. In the UK, car insurance prices have finally begun to fall, dropping around 5% in the past three months to an average of £941 (although still an eye-watering 43% higher than a year ago). And if you were thinking of driving out for a coffee or hot chocolate, bad news, the prices of those two commodities hit a new record (nearly £9,500 for a ton of chocolate and coffee hitting $4,292 per ton).
This morning we have had news on retail sales for the UK in March, which showed no growth, as shoppers reduced spending on groceries. This had not been predicted by economists, who had forecast growth of 0.3%, and is the second month of volumes being flat.
With the battle to control inflation, the UK looks likely to delay, for the fifth time, bringing in new post-Brexit border checks on incoming EU goods on 30th April, amid worries that if implemented they would cause long delays. The government department responsible said: “There is a potential for significant disruption on day one if all commodity codes are turned on at once.”
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GBP: Markets wait for clearer sign on rates
Later today we’ll be hearing from more Bank of England interest rate setters. Will they follow Andrew Bailey’s line that inflation is firmly on the way down and all is not lost for rate cuts sooner rather than later?
Next week kicks off with the CBI Business Optimism reading and on Tuesday we’ll have a flash reading for PMI
GBP/USD past year
EUR: Downhill for the euro
The single currency was severely on the backfoot yesterday, as the markets perhaps began to accept that rate cuts were coming from the ECB earlier than the Fed.
On Monday we’ll get a flash reading for eurozone consumer confidence, then business confidence on Tuesday with PMI in Germany and France.
EUR/USD past year
USD: Dollar rises as rate cut hopes fade
The US dollar was once again the winner, extending its gains against the euro and pound to close to 1% on the week. Other than the aforementioned PMI there will be little to interest the markets until midweek, with durable goods orders and quarterly GDP.
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USD/GBP past year
