26/07/2024
Written by: Ian Morley
Summary:
A series of speeches from Fed officials on Friday underscored their worries about inflation, bolstering the USD as markets closed. US data earlier in the day presented a mixed picture, with Michigan sentiment figures down but 1-year inflation expectations up. Additionally, UK morning data revealed a stronger-than-anticipated economic recovery from last year’s recession.
Speeches:
Market Insight:
This week, attention will largely focus on US inflation, with PPI figures scheduled for release on Tuesday followed by CPI numbers on Wednesday. Recent central bank statements have highlighted the discrepancy in inflation forecasts between Europe and the US, leading markets to anticipate a later rate cut by the Fed compared to European counterparts. A robust inflation reading will maintain expectations for a later rate cut this year, supporting the USD, albeit with potential constraints on gains. Notably, the USD has demonstrated sensitivity to weak US data recently, so any lower-than-expected figures this week could drive GBPUSD and EURUSD to retest the highs seen following a weak nonfarm payroll report earlier this month.
In last week’s Bank of England (BoE) meeting, Governor Bailey stressed the significance of forthcoming data. Therefore, GBP focus will be on tomorrow’s job market data. Current forecasts suggest a slight uptick in unemployment to 4.3% and a moderation in average weekly earnings growth to 5.5%. Any indications of labour market weakening could heighten the probability of a rate cut in June, which would negatively impact GBP.
Analysis:
Fed members continue to express concerns about inflation, given the decline observed since 2022 and the stagnation since the latter half of 2023. April’s figures are expected to reveal a marginal monthly decrease in the core number to 0.3%, bringing the year-on-year figure down to 3.6%.