U.S. Dollar Consolidates Amid Latest Data and Geopolitical Turmoil
GBP
GBP/USD has rebounded slightly and is currently trading at 1.2486 (interbank) after Friday saw GBP/USD reach the lowest level since November last year. GBP/EUR is trading at 1.1712 (interbank).
Currently, financial markets are anticipating that the BoE will commence reducing borrowing costs starting from August, while the Fed is expected to follow suit from its September meeting.
Moreover, market projections for interest rate cuts by the BoE have been revised, with the policy rate now anticipated to decline to approximately 4.75% by the end of 2024, down from the current rate of 5.25%. This represents a departure from the previous expectation of a drop to 4.5% by December.
BoE policymaker Megan Greene emphasized that rate cuts in the UK should still be seen as distant, citing a greater risk of persistent inflation in the UK compared to the US.
This week, fresh employment and inflation data from the United Kingdom will guide market expectations for the BoE as investors ponder when it might initiate its long-awaited rate-cut cycle.
Investors will closely watch tomorrow's release of wage growth data for the three months ending February, as it remains a key driver of the UK's stubborn price pressures.
No significant events are scheduled for today.
No significant events are scheduled for today
EUR
EUR/USD is currently trading at 1.0660 (interbank), rebounding from a five-month low of 1.0622 reached last Friday.
This morning, industrial production in the eurozone rebounded in February, driven by output increases in larger nations, signaling a potential easing of the slump in the sector, despite a still subdued environment for manufacturing. Total production rose by 0.8% compared with the previous month, according to figures published Monday by statistics body Eurostat, aligning with a consensus forecast of economists polled by The Wall Street Journal. This contrasts with a 3.0% decline recorded in January.
The ECB indicated that if underlying inflation continues to decelerate as expected, there's a possibility of considering a reduction in policy rates in June.
Earlier today, Gediminas Šimkus, a member of the ECB Governing Council, suggested that there is a greater than 50% likelihood of more than three rate cuts occurring this year, as reported by Reuters. Šimkus also noted that geopolitical events, such as an escalation of the Israel-Iran conflict, could potentially delay the first rate cut to July from June.
ECB Lane is scheduled to speak shortly.
Today’s Events (GMT):
10:00 - Industrial Production (MoM) (Feb) - Actual: 0.8%
11:00 - ECB's Lane Speaks
USD
The dollar index, which gauges the currency against a basket of other major currencies, remains largely unchanged at 105.92. Last week, the index registered a 1.7% surge, marking its most significant weekly gain since September 2022. Year-to-date, the index has climbed 4.6% and currently hovers near its peak levels since early November.
The dollar's upswing follows a hotter-than-anticipated consumer price (CPI) report last week and heightened safe-haven demand post Iran's extensive missile and drone strike against Israel.
Late Friday, investors were pricing in merely 50 basis points of interest rate cuts in 2024, as per futures markets, compared to the 150 basis points priced in at the outset of the year.
Today’s focus will be on U.S. Retail Sales data. Forecasts for U.S. retail sales month-on-month indicate a 0.4% increase from the previous 0.6%, while core retail sales month-on-month are projected to rise by 0.5% from 0.3%. Investors will scrutinize these figures to validate the positive trajectory of retail sales, fueled by robust wage growth.
Today’s Events (GMT):
13:30 - Retail Sales (Mar) - Forecast: 0.4%
13:30 - Core Retail Sales (Mar) - Forecast: 0.5%
13:30 - FOMC Member Williams Speaks
13:30 - NY Empire State Manufacturing Index (Apr) – Forecast: -5.20
15:00 - Business Inventories (Feb) - Forecast: 0.3%
CAD
USD/CAD is presently trading at 1.3785 (interbank), hovering near its highest level since November 14.
Oil prices saw a decline today following Iran's weekend attack on Israel, which the Israeli government reported as inflicting limited damage. Brent Crude fell by 0.5% to $89.95 a barrel, while West Texas Intermediate (WTI) dropped by 0.6% to $85.14 a barrel. The attack, involving over 300 missiles and drones, raised concerns about potential disruptions to oil traffic in the Middle East.
Canada’s economy has been facing challenges due to elevated borrowing costs, coupled with a significant easing in inflation.
The adverse impact of higher interest rates has been more pronounced in Canada compared to the US. Therefore, there appears to be little hindrance for the Bank of Canada to commence rate cuts in June.
Market sentiment indicates a near 50% probability that the BoC will initiate rate cuts in June.
This afternoon, Housing Starts and the latest Wholesale data are due, though investors will closely monitor tomorrow’s inflation figures.
Today’s Events (GMT):
13:15 - Housing Starts (Mar) - Forecast: 244.0K
13:30 - Wholesale Sales (Feb) – Forecast: 0.8%
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