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US data raised fears that 'stagflation' was setting in.
The US dollar ended last week on a high as the Federal Reserve’s favoured measure of inflation increased by 0.3% in March.
It’s a similar pace to last month, but the stubborn increases were a worrying sight when coupled with Thursday’s US GDP figures, which surprised to the downside. Markets are now pricing in the first US rate cut to arrive around November, far later than the vast majority of people had thought conceivable just a few months ago.
GBP/USD still gained around 0.5% across the week despite losing half a cent on Friday. The pound advanced slightly on the euro, while EUR/USD shed its weekly losses on Friday.
With little European data to look at, the US was squarely in focus to end the week. Personal spending and income metrics were on the rise in March in another sign that inflation was proving a worthy opponent.
Frequent readers of our daily musings will know we’ve been following the Japanese yen for some time. In the early hours of Friday, the Bank of Japan provided another twist by opting to leave interest rates unchanged at 0%, precipitating another yen selloff.
The Japanese yen then whipsawed (i.e. its value moved both up and down at a rapid pace) against the US dollar as markets anticipated government intervention. It was not a great look for Tokyo. The folks on Deutsche Bank’s research desk referred to the Japanese government’s policy as one of ‘benign neglect’, stinging praise for a currency many had projected to have a strong 2024.
The events of last week serve as a reminder that relying on projections and predictions is a dangerous game. That’s the exact point we make in our April to June Quarterly Forecast, which you can download here.
As currencies spin around, the main point to keep in mind is that things change far too quickly to leave your money at the mercy of market whims. We’re here to build a safe, sound strategy that means your next transaction is protected, regardless of where rates go.
Here’s what to look out for this week…
German inflation kicks proceedings off this time around. A host of European nations then report inflation and GDP figures on Tuesday, along with the eurozone’s consolidated figures.
Wednesday features ISM Manufacturing PMI and JOLTs job openings. The Fed then make their interest rate decision, and while no change is expected, markets will be tuning in for Jerome Powell’s comments on recent events.
The back end of the week is again US-heavy, although S&P Global Services PMI will wake UK markets up on Friday.
GBP: Regaining ground
Sterling recovered from its recent wobble to post a much more solid week against its rivals. GBP/EUR trended up and looks to build on momentum this time around.
GBP/USD: the past year
EUR: All square
The euro had been having a good week against the US dollar, before the drama of Thursday and Friday helped quash those gains. It could be in the firing line again with more European data in the early part of this week.
GBP/EUR: the past year
USD: Fed’s wild week
US data last week sharpened focus on the Federal Reserve, who now must navigate a tricky environment as the next election draws ever closer.
EUR/USD: the past year
For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business account manager on 020 7898 0500 or your Private Client Account Manager on 020 7898 0541.
