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Markets keenly await inflation data later today from the US
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Daily Currency Update
ECB policymaker, Francois Villeroy de Galhau, said that “an increase in European long term yields, with all else being equal, typically tightens financial conditions”. He echoed concern that France, Germany and Spain simply must bring their deficit back to 3%. Separately ECB Vice President, Luis de Guindos, said that the council are optimistic with regard to inflation and believe rates will normalise toward their 2% target in the coming quarter and will remain stable through 2025.UK Chancellor, Rachel Reeves, said yesterday that; “the UK is in intensive tariff talks with the US administration”. She added that she believes in free and open trade. Ms. Reeves said that both the UK and US trade flows should continue to be strong and that trade frictions will harm both countries. To date the UK has avoided the imposition of tariffs and as a direct result the Pound has remained firm versus its G7 counterparts.
The US Bureau of Economic Analysis (BEA) reported yesterday that US GDP expanded at a rate of 2.4% in the fourth quarter of last year, market expectations were for a rise of 2.3%. The increase was directly because of consumer and government spending that was partly offset by a decrease in investment. The US Dollar failed to make any gains on this data but rather weakened as markets weigh the effect of Trump’s policies on the value of the greenback.
Key Movers
The European Union is preparing its response to new import tariffs announced by the United States. A spokesman said that they are presently unsure on the timing but assured investors that their response will be robust, that it will be well calibrated and that retaliatory measures will achieve the intended impact. The single currency had a muted reaction to these comments and ended the day marginally higher by 0.4%.The Office for National Statistics in the UK reported that retail sales, a key measure of consumer spending, surprised as it rose by 1% month on month after economists predicted a drop of 0.3%. Upbeat retail sales is expected to support the Bank of England who have guided a “gradual and cautious” monetary easing outlook after last week policy meeting where they left interest rates unchanged at 4.5%. The Pound is expected to rise into next week after the release of stronger than expected figures.
The US bureau of Economic Analysis (BEA) is set to release Personal Consumption Expenditure (PCE) figures later today and this is the Federal Reserves preferred method for monitoring inflation. Fed Chairman, Jerome Powell, noted that “it would not be the right thing to tighten policy if the inflationary impulse would go away on its own”. He added that it will become clear over the coming months if higher goods inflation in the first few months of this year was a direct result of tariffs.
Expected Ranges
- GBP/USD: 1.2920 – 1.2975 ▲
- GBP/EUR: 1.1985 – 1.2025 ▲
- GBP/AUD: 2.0550 – 2.0610 ▲
- EUR/USD: 1.0750 – 1.0800 ▲
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