By Rob Burton
It’s been a busy week for the major currencies, with both the Federal Reserve and the Bank of England opting to leave interest rates unchanged. While rates remain on hold, both central banks have stressed that inflation risks haven’t disappeared, meaning markets remain highly data dependent.
Looking at recent price movements, the US Dollar strengthened earlier in the week as markets positioned ahead of the Federal Reserve, but gave back some gains after the Fed offered no major surprises. Sterling has traded with a slightly firmer tone following the Bank of England meeting, although it’s still largely range-bound as investors await clearer guidance on the next rate move.
The Euro has experienced modest fluctuations but remains broadly stable, with traders reluctant to take large positions ahead of Friday’s Eurozone inflation figures.
Starting with Sterling, the Pound has held up reasonably well, but direction will continue to depend on incoming UK economic data and expectations around future Bank of England policy.
The Euro has also been relatively steady. Attention now turns to Eurozone inflation, with today’s preliminary CPI figures likely to be the biggest driver for the single currency.
The US Dollar continues to take its lead from the Federal Reserve. Despite holding rates, the Fed remains focused on inflation, so today’s US data will be watched closely for confirmation that price pressures are continuing to ease.
Key releases today include Eurozone Flash CPI, the US Employment Cost Index, US Personal Income and Spending, Chicago PMI and the University of Michigan Consumer Sentiment survey.
GBP/USD remains driven by the policy outlook between the Bank of England and the Federal Reserve. EUR/USD is likely to react most to the Eurozone inflation figures, while GBP/EUR may remain range-bound unless the inflation data delivers a meaningful surprise.
Overall, expect volatility around today’s inflation and US economic releases. With central banks remaining cautious, each new data point is carrying more weight than usual, so clients with upcoming currency requirements should consider managing their exposure rather than relying on market timing alone.