By Kian Songra
Last week saw a volatile end for the GBP/USD as U.S. non-farm payrolls rose to 303K in March from 270K, exceeding expectations for 212K. The unemployment rate also dipped to 3.8% from 3.9%, which was expected to remain the same. Consequently, the markets saw a volatile trading session with a sharp drop in the rates as it has pushed back the expected first Fed (Federal Reserve) rate cut to September.
The Euro continued to gain strength over the pound with the gradual decline continuing in trend. For those that thought the previous highs would be retested, must be realistic that if the trend continues, securing your euros whilst we are still in a favourable position will mitigate any risks. Once factor taken into consideration by the market participants is the Bank of England (BOE) showing signs that an interest rate cut could be coming sooner than expected due to more control over inflationary pressures.
Week ahead
In the US, the upcoming week will be dominated by key events including the release of the FOMC meeting minutes, the March CPI report, and the preliminary reading of Michigan consumer sentiment for April. Investors will closely analyse the March minutes and speeches from various Fed officials to gain insights into potential interest rate adjustments, especially following the recent strong jobs data. In terms of economic data for the US, headline inflation is expected to rise for the second consecutive period to 3.4%, while the core rate is forecasted to decrease to 3.7%, marking its lowest level since April 2021. Both headline and core rates are projected to increase by 0.3% month-over-month, down from February’s 0.4% rises.
Meanwhile, in Europe, all eyes are on the Thursday European Central Bank (ECB) meeting where interest rates are anticipated to remain unchanged. However, the meeting is crucial in assessing the likelihood of future rate cuts and any communication changes from the ECB. If the ECB was to reaffirm a stance of rate cuts being held off for the shorter term, we could see the euro gain further on the pound and dollar. On the economic front, Germany’s export data is expected to show a slight decline of 0.5% from its 11-month high, while imports are forecasted to decrease by 0.9%. Nonetheless, Germany’s industrial production is anticipated to continue its upward trend for the second consecutive month, indicating resilience in the manufacturing sector.
In the UK, the Office for National Statistics will release monthly GDP figures on Friday, as well as industrial production, construction output, and trade balance data. The UK economy likely grew by 0.1% in February following a 0.2% expansion in January, with manufacturing production returning to growth. The GDP figure will be the only significant data release in a fairly quiet week in terms of UK data, so any unexpected outcomes could cause a more significant movement in the trading levels.
A potentially volatile week ahead and some important data releases could impact your FX costs, so don’t hesitate to reach out to our team here who will guide you through the markets and explain how we can help reduce the risk.