Home Daily Commentaries Markets await inflation data

Markets await inflation data

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Tuesday 21 May, 2024

Daily Currency Update

The Euro remains strong, however it has been a very quiet start to the week with most currency pairs trading in tight ranges. European Central Bank (ECB) council member, Schnabel, cautioned against markets looking beyond the expected June rate cut in Europe reiterating that further cuts will be “data dependant".

In the UK, economic data has been better. This has led to the Pound trading at a five-week high vs the Euro and US Dollar. It seems the recession the UK entered in the latter part of 2023 has been shallower and shorter and this has also underpinned the strength of the Pound. UK wage growth remains firm. Markets are now pricing in less interest rate cuts this year.

Atlanta Federal Reserve President, Raphael Bostic, said the key issue with US interest rate policy is; “when are they going to be certain that inflation is falling back to their 2% target and that it is going to be a while before they are sure”. This has created confusion as markets try to anticipate the timing around the Federal Reserve’s first interest rate cut this year.

Key Movers

In Europe this week we see the highly anticipated release of PMI data (Purchasing Managers Index). This inflation figure will give the market definitive clues on the probability of a rate cut in Europe this June. We also have several speeches from ECB President, Christine Lagarde, which could influence the single currency’s direction and the ECB’s monetary policy decisions.

This Wednesday, we see the release of UK CPI data (Consumer Price Index) which will be a significant indicator for the Pound's position. Economists presently think that services inflation may exceed the Bank of England’s projections, and this could move rate cut expectations from June to August and if correct should lead to further strengthening in the Pound vs the Euro and Dollar.

The US Dollar remained stable today ahead of multiple speeches from Federal Reserve officials this week. Markets are actively watching economic data to understand when the Federal Reserve will begin cutting interest rates. Consensus seems to be for the first rate cut to come in August with the Fed reducing borrowing costs by 25 basis points.

Expected Ranges

  • GBP/USD: 1.2665 - 1.2730 ▲
  • GBP/EUR: 1.1675 - 1.1730 ▲
  • GBP/AUD: 1.9055 - 1.9120 ▲
  • EUR/USD: 1.0830 - 1.0880 ▲

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.

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