03/10/2024
The recent producer price inflation figures surpassed expectations in January, indicating a 0.3% increase compared to December’s -0.1% and an anticipated 0.1%. This led to an initial rise in the USD, mirroring the response to last week’s consumer price index data, though the currency couldn’t sustain the gains.
Throughout the day, the British Pound (GBP) experienced a sustained weakening following the release of GDP figures, which confirmed the UK’s entry into recession in the latter part of 2023. Chancellor Jeremy Hunt’s remarks suggested pressure on the Bank of England to address the recession, linking it to a target inflation rate of 2% for potential interest rate adjustments. There are indications of political pressure on Governor Bailey to reduce rates ahead of the elections.
Following the decrease in UK inflation, the GBP faced ongoing challenges despite Governor Bailey’s mixed remarks later in the day. Notably, there was a significant reversal on GBPEUR, which had reached 2023 highs just a day earlier.
The USD showed marginal weakening in the afternoon, resulting in gains on the EUR. Earlier, EUR GDP for Q4 met expectations, remaining at 0.0% quarter on quarter.
The US dollar surged yesterday as inflation figures challenged the narrative of disinflation in the US, leading to a sell-off in treasuries and pushing yields to their highest levels since December. Major currency pairs such as EURUSD and GBPUSD experienced significant movements, with GBPUSD retracting earlier gains after positive job numbers. Concerns also arose regarding real average weekly earnings declining into negative territory while household credit card debt remains high.
Market activity was mixed yesterday as traders awaited significant data releases later in the week. Despite central bank speakers like Fed’s Bowman and ECB’s Wunsch expressing reluctance towards immediate rate cuts, FX rates remained largely unaffected. EUR buying was observed as a hedge against potential disappointing UK data, while clients showed interest in placing Limit Orders on GBPUSD and EURUSD ahead of today’s US inflation figures.
Trading activity remained subdued across European markets as investors awaited updates on US inflation. Notably, the New Zealand Dollar exhibited strong performance following a hawkish stance from the RBNZ. Clients displayed heightened engagement ahead of key data releases, particularly concerning GBPEUR, amidst concerns of breaching 2023 highs. Activity on GBPUSD and EURUSD remained balanced, with investors awaiting the outcome of the US inflation figures.