Market Steadies as Rate Cut Expectations Recede
GBP
GBP/USD has dipped by 0.1% to 1.2634 (interbank rate), while GBP/EUR remains steady at 1.1666 (interbank rate).
The Pound slipped this morning as lackluster pay figures from recruiters added to indications of a slowdown in Britain's job market.
Starting salaries for permanent staff grew at their slowest rate in over three years in March, according to recruiters, while expenditure on temporary workers experienced its most significant decline since July 2020.
The data may strengthen the conviction among Bank of England policymakers that underlying wage pressures in the economy are diminishing enough to maintain inflation at its 2% target. Nevertheless, the BoE has been hesitant to heavily rely on REC data in recent months.
Traders assess just a 25% likelihood of the Bank of England cutting rates at its forthcoming meeting on May 9, as per futures markets data.
This week, the Pound Sterling's trajectory will largely hinge on the latest Retail and Gross Domestic Product (GDP) figures for February, slated for release tomorrow and Friday, respectively.
Today’s Events (GMT):
10:20 - Mortgage Rate (GBP) - Forecast: 7.92% vs Previous: 7.92%
EUR
EUR/USD is presently trading lower at the interbank level of 1.0833.
This morning, Germany's industrial sector continued its robust growth in February, with industrial output increasing by 2.1% month-on-month, surpassing expectations and marking a significant upturn compared to January's figures. However, on an annual basis, German industrial production witnessed a 4.9% decline in February, somewhat less severe than the 5.3% drop recorded in the previous month.
The Eurozone Sentix Investor Confidence Index also rose to -5.9 in April from -10.5 in March, reaching its highest level since February 2022.
The spotlight this week will be on the ECB policy meeting scheduled for Thursday.
Traders anticipate the central bank to maintain rates and signal the likelihood of the first rate cut in June. Unlike the Fed, ECB policymakers express greater confidence that inflation is on course to meet the 2% target. This elevates the possibility of the ECB cutting rates before the Fed.
Today’s Events (GMT):
07:00 - German Industrial Production (Feb) - Actual: 2.1% vs Forecast: 0.6%
07:00 - German Trade Balance (Feb) - Actual: 21.4B vs 25.1B
09:30 - Sentix Investor Confidence (Apr) - Actual: -5.9 vs Forecast: -8.3
USD
The dollar index, gauging the currency against a basket of other major currencies, remains relatively stable on Monday at 104.38, while U.S. Treasury yields, reflecting expectations of interest rate movements, edged higher.
Anticipation of more clues on U.S. interest rates, particularly from inflation data and additional Fed commentary, has also maintained cautious sentiment towards Asian markets.
The U.S. dollar has stabilized as markets recalibrate June rate cut expectations following a significantly stronger-than-anticipated nonfarm payrolls report for March.
The report, indicating a robust U.S. labor market, prompted a significant reduction in expectations that the Fed would cut interest rates as early as June.
Traders now project a roughly 51% probability of a 25 basis point cut in June, down from 55% seen last week. Expectations of a hold surged to approximately 46.8%, up from 39.6% last week, according to the CME Fedwatch tool.
This week, focus will be on the U.S. consumer price inflation data for March on Wednesday and the minutes of the Fed’s March meeting scheduled for release on Wednesday.
Today’s Events (GMT):
16:00 - NY Fed 1-Year Consumer Inflation Expectations - Previous: 3.00%
CAD
USD/CAD has advanced and is presently trading at 1.3595 (interbank rate) in today’s trading session.
On Friday, data revealed an unexpected 2,200-job decline in Canada’s economy for March. Additionally, the unemployment rate surged to a higher-than-anticipated 6.1% during the same period. This report unveiled weakness in the labor market and the economy, increasing pressure on the Bank of Canada to lower interest rates.
Oil prices have slipped by more than $1 a barrel this morning, with Brent dipping below $90, following eased tensions in the Middle East after Israel withdrew more troops from southern Gaza and committed to fresh talks on a potential ceasefire in the six-month conflict. Brent crude futures slid $1.48, or 1.6%, to $89.69 a barrel, while U.S. West Texas Intermediate crude stood at $85.54 a barrel, down 1.5%.
This week's primary focus is on the Bank of Canada's upcoming interest rate decision on Wednesday. Although forecasts suggest the BoC will maintain rates at 5.0%, recent employment data prompted a shift in market expectations. Prior to the report, there was a 68% likelihood of a rate cut in June, but after the data release, this probability increased to 75%.
No significant events are scheduled for today
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