26/07/2024
Written by: Ian Morley
Summary:
The US dollar faced significant losses today as markets prepared for the upcoming payroll report on Friday. This decline followed lower-than-expected ISM services numbers, notably a drop in the prices paid component to a four-year low. Despite Federal Reserve Chair Powell’s remarks implying the Fed’s willingness to base rate decisions on data, there was no increase in demand for the USD. Overall, both the data and Powell’s comments didn’t alter the rate outlook, suggesting the USD sell-off was likely due to profit-taking after Easter weekend gains.
In the European Union, morning inflation figures slightly dipped, reinforcing the possibility of a rate cut in June without indicating an immediate cut in April.
Speeches:
Market Insight:
Today, the focus was on PMI releases from the UK and EU, offering insights into the performance of each economy this quarter. With EU activity steadily catching up to the UK’s in recent months, it’s anticipated that unless there’s a significant deviation in the numbers, GBP/EUR trading will likely remain within its current range. While the USD sell-off underscores the currency’s sensitivity to data, the narrative of higher rates for longer continues to drive demand for the USD, reflected in increased bets on further USD strength according to the Commodity Futures Trading Commission’s trader positions survey.
Analysis:
This quarter has seen a gradual reduction in the difference in composite PMI activity between the UK and Europe, indicating that economic activity in Europe is closing the gap with the UK’s. Combined with converging rate cut expectations from the Bank of England and the European Central Bank (ECB) to June, this explains the market’s reluctance to push GBP higher against the EUR. It appears that a range-bound play on GBPEUR is likely to persist.