Ebury: Small fluctuation range for major currencies

Currency markets were largely unchanged last week in the absence of major political and macroeconomic data announcements. As stated by Enrique Diaz-Alvarez, Ebury’s Chief Financial Risk Officerfrom the data published, the image of a strong economy of USA and of a slowly improving growth in Europewhile at United Kingdom inflationary pressures are still high. The week ended with the major currencies not showing a fluctuation greater than 1% from where they started.

Next Thursday they will be published in Eurozone, United Kingdom and USA the PMI indicators that accurately capture the course of economic growth, as well as the US Personal Consumption Expenditure index, the preferred index for Fed to depict inflation.

Sterling

February wages and March inflation moved unexpectedly higher in the UK last week, making it harder for the Bank of England to justify rate cuts. We believe a backdrop of high interest rates, continued inflationary pressures and resilient economic growth paints a positive picture for sterling in 2024. This week’s PMI data from the UK should remain consistent with the healthy expansion seen in the last two reports for the GDP.

Euro

The announcements of the ECB regarding the formation of monetary policy in the future suggest that the first rate cut will take place in June, however the next decisions depend on the data. The economic improvement seen recently, as well as the gap between structural inflation and the Fed’s hawkish rhetoric argue against a sharp tapering cycle. Current market expectations for three cuts before the end of the year are underpinned by a continued downward trend in inflation unlike what we are seeing in the US.

Dollar

Economic data showing strong economic activity as well as persistent inflation have reshaped market expectations for Fed rate cuts this year. The chances of a first cut in June are slim, while the dollar has strengthened because of it. However, current levels reflect some significant overvaluation in our view, and a further rise would require significantly higher inflation figures than we have seen so far.