By Matthew Boyle
The Pound received a boost early this morning as UK inflation figures came in higher than expected. Headline CPI jumped to 3.3% in March, up from 3.0% because of surging energy prices due to the war in Iran. Following the data release, the Pound has gained just under half a cent against both the Euro and US Dollar – relatively small gains, likely due to the fact higher inflation would have been expected and so largely priced in. UK services data also showed an increase to 4.5% in March, from a previous figure of 4.3%, which when combined with the inflation increase raises the chance the Bank of England could in fact raise interest rates later this year.
Tomorrow could equally see the markets move, as the three majors – GBP, USD and EUR – go head-to-head with each having production, manufacturing and services data released. Any surprise results here could well see rates shift across the major pairings.
Friday is a relatively quiet day with UK retail sales data released early morning and a speech by Swiss National Bank chairman Schlegel.
All eyes now will be strongly set towards the Bank of England Interest rate decision next Thursday. Whilst a change is not expected, any hints in the meeting minutes of a change to the makeup of the MPC vote regarding the BoE policy and Interest rates could, see rates shift significantly. Several market analysts though suggest that the BoE are likely to remain fixed in their stance, with uncertainty in Iran ongoing. So, movement in FX rates due to central bank monetary policy will be in the hands of the Federal Reserve and the European Central Bank, at least in the short term.
For the foreseeable future it seems Trump and the Iranian war will be the driver of market sentiment, as the ongoing conflict in the Middle East increases energy prices. With energy prices intrinsically linked to inflation levels and therefore central bank interest rates this is and will be the main driver of exchange rates until the conflict concludes.
As such it is likely the markets will remain volatile and uncertain primarily due to how unpredictable President Trump is.
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Major data releases this week
Today
07.00 GBP UK Inflation data
18.30 EUR ECB President Lagarde speech
Thursday
08.30 EUR German production, manufacturing, and services data
09.00 EUR Eurozone production, manufacturing, and services data
09.30 GBP UK production, manufacturing, and services data
14.25 USD US production, manufacturing, and services data
Friday
07.00 GBP UK retail sales
09.00 CHF Swiss SNB Chairman Schlegel speech