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All eyes are on the Bank of England after the UK economy shrank in January.
The pound ended last week on the back foot after the release of disappointing GDP data. News that the UK economy shrank in January pushed GBP/EUR down by half a cent and focused attention on the Bank of England’s next interest rate decision on Thursday (20 March). This was an unhelpful distraction too for chancellor Rachel Reeves, who will step up to deliver her Spring statement in the House of Commons next week.
Across last week, the pound traded blows with its main rivals but ended up almost where it began against both the euro and the US dollar. The US dollar’s struggles continued but it did not see as much sustained pressure as it did to begin March.
US consumer sentiment plunged to its lowest level since November 2022 in the University of Michigan’s March survey. Many consumers pointed to extreme uncertainty in a number of areas, from personal finance and savings to investments. In just two months, consumer confidence has dropped from 71.1 to 57.9 – well below the historical average of 85.
Another torrid week for the US stock market saw the price of gold soar past its record high, only just nudging back below $3000 per Troy ounce by the end of Friday. Like the US dollar, gold is a safe-haven investment beloved by investors in times of stress.
New data from China this morning shows industrial production expanded by an annualised rate of 6.2% across January and February. On the consumer front, retail sales increased by 3.7% over the same time period, in line with forecasts.
The Bank of England’s interest rate decision is the main event this week for anyone with a vested interest in sterling. The Federal Reserve will announce their own decision on Wednesday evening, with attention sure to focus on any remarks chairman Jerome Powell has to make with regard to the new US president.
A smattering of economic data will keep things moving along. For the eurozone, the German ZEW economic sentiment survey is the most impactful, while in the UK eyes will be on unemployment data, helpfully published the morning of the Bank’s decision.
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GBP: Bank caution a potential fillip
Sterling cannot afford to lick its wounds from a disappointing GDP result for long. With an interest rate decision looming, the pound can expect volatility ahead, particularly with unemployment figures due to arrive. Analysts expect the Bank to leave rates unchanged, but the case for further cuts was made all too clear with the economy’s contraction.
GBP/USD: the past year
EUR: A swift turnaround
The euro’s recovery in recent weeks has been nothing short of remarkable. Fuelled by a newly united continent (and one that recognises the challenges it faces), the euro has recorded back-to-back weeks of sizeable advances over its rivals.
GBP/EUR: the past year
USD: Consumer mood harms dollar
Across America, the consumer mood is darkening. The heady days of the “Trump trades” seem a long time ago, with people growing increasingly unsure of how their jobs and businesses will survive the new regime. This has led to a broad correction in US markets that has spilled over into the US dollar and shows no sign of letting up just yet.
EUR/USD: the past year
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