Increased volatility likely to remain

By Lauren Buckner

Following the recent trend of high volatility the week ahead sees significant data releases which are likely to support this trend. With GBPEUR testing the key 1.20 level in recent days it is worth noting that this has been a story of euro weakness as opposed to a strengthening pound. The single currency has been hard hit against most major currencies since the Russian invasion of Ukraine and the unfolding political drama in France, its 2nd largest economy.

The cost of living crisis in the UK has become all too real with energy price hikes and an increase in national insurance coming in over the past two weeks and leaving some now having to choose between heating and eating. As we hear stark warnings of civil unrest and face an inevitable drop in ‘luxury’ spending the UK economic recovery could be derailing at an unprecedented pace.

Retail sales data on Tuesday morning is one to watch, particularly following the unexpected drop in February. The importance of this is that if we are not spending at the same pace then inflation is likely to stagnate, which leaves the Bank of England under less pressure to raise interest rates – with interest rate rises having been the conductor in GBPs strength since December 2021. If we derail the expectations of further rate rises the Pound could begin to drop in value.

The first round of the French presidential election was completed yesterday and cemented the results of the opinion polls from last week; Emmanuel Macron will face Marine Le Pen in his attempt to stay for a second term in the Elysee. Le Pen, a far right party leader, has taken advantage of domestic issues amongst the population and surged in popularity whilst Macron has been focussing on assisting Ukraine with the Russian invasion. Le Pen, offers a potentially stark contrast in the country moving forward. The main event happens on 24th April and is something to keep an eye on.

European Central Bank president Christine Lagarde has a tough job ahead of her on Thursday when we have the latest monetary policy meeting for the ECB. Needing to find an impossible balance between rampant increases in inflation and a neutral growth forecast it is expected at this stage to be a bit of ‘non-event.’ However, Lagarde proved she has the ability to make markets listen and react when a similar expectation was held before the Bank’s meeting in January and the accompanying press conference saw a surge in euro strength as Lagarde overcame criticism of a dovish bank board. Interest rates are expected to increase by around 0.6% in the EU by year end.

The USD took advantage of the pressures on the single currency as last week’s Federal Reserve minutes saw a return to more hawkish language. Having raised interest rates by 0.25% the minutes show that soaring inflation in the States is of major concern and that further rate rises of 0.5% each time should be expected in an attempt to bring interest rates up to a more ‘neutral position’ thought to be around 2.4%. The Fed also confirmed in discussions that they will curtail their involvement of key financial markets which had been introduced in the face of the coronavirus pandemic and reduce their holdings of treasury bonds by $60billion dollars per month and mortgage-backed securities by around $35billion per month. As a result the Dollar has strengthened against both the Euro and GBP – is the US economy set to outperform both the UK and the EU this year?

As we enter Easter week please remember to make currency orders as soon as possible to prevent the inevitable delays with navigating alternative holiday days between the UK and EU. As always our friendly team are on hand to help.

The week ahead

Tuesday

UK – Retail Sales (Mar)

Claimant Count

Unemployment Rate

Average Earnings

EU – German ZEW economic sentiment survey

ECB Bank lending statement

US – Consumer Price Index

Wednesday

NZ – RBNZ interest rate decision

UK – Consumer Price Index

Producer Price Index

Retail Price Index

US – Producer Price Index

Thursday

AU – Au Unemployment Rate

EU – ECB Interest Rate decision

ECB Monetary policy decision statement

ECB Press conference

US – Initial jobless claims

Retail Sales

Friday

Good Friday