26/07/2024
Written by: Ian Morley
Summary:
The euro experienced early trading weakness due to investor reactions following the European Parliament elections. French President Emmanuel Macron and German Chancellor Olaf Scholz faced setbacks in the polls. In response, Macron called for a snap election in France, scheduled for 30th June and 7th July, aiming to counter the rise of his far-right competitor, Marine Le Pen.
On Friday, unexpectedly robust job numbers from the US disrupted the prevailing trend of weaker data. Nonfarm payrolls revealed a significant increase of 272,000 jobs in May, and average hourly earnings rose by 4.1% year-on-year. Consequently, Treasury yields surged, and the USD strengthened. Markets now anticipate only one rate cut from the Federal Reserve this year. This shift comes after weaker job numbers in the previous month led to a month-long selloff of the USD.
Speeches:
Market Insight:
GBPEUR is currently trading at its highest levels since August 2022. The surge follows the announcement of a snap election in France. While Macron’s party and its allies may lose some seats, they are likely to remain the largest faction in Parliament.
This week holds significant events related to the USD. On Wednesday, May’s Consumer Price Index (CPI) figures will be released in the afternoon. Expectations are for further easing of inflation, with core numbers anticipated to decline from 3.6% to 3.5%. The Federal Reserve is not expected to cut rates during the evening meeting, but attention will shift to the revised dot plot. In March, the dot plot projected interest rates falling to 4.625% from the current 5.5%. However, money markets, pricing in only one rate cut this year, suggest the Fed may revise their projections upward. A combination of higher CPI and a more hawkish Fed could strengthen the USD further.
Last month’s UK data caused markets to delay expectations for a Bank of England (BoE) rate cut, contradicting earlier guidance suggesting a summer rate cut. If Tuesday morning’s job numbers prove robust, markets may push back the first rate cut to December, potentially boosting the GBP.