03/10/2024
Written by: Ian Morley
Summary
Due to the US bank holiday, market activity was notably subdued yesterday. Among the G10 currencies, the USD saw overall gains while the GBP experienced declines across various markets.
Key Speeches
• GBP: Governor Bailey
Market Insight
Today, attention will be focused on the EUR as the ECB releases its survey on wage negotiations in Europe. This survey is considered pivotal in the ECB’s decision-making process regarding interest rate adjustments. Any indications of an earlier or more aggressive rate cut this year could lead to weakness in the EUR. Currently, markets are pricing in the first rate cut for June, with a 44% probability assigned to this event. Additionally, there is speculation of a total 1% reduction in rates throughout the year.
Analysis
GBP has been favoured over EUR in terms of interest rate differentials, with the spread widening by 43 basis points since the beginning of the year. Today’s ECB wage survey may further widen this gap if it indicates reduced inflationary pressures. Looking ahead to Thursday, the release of February PMI numbers and final CPI figures for January will provide additional insights. European PMI activity has been in contraction for the past eight months, signalling a slowdown in the economy, while UK figures have shown a rebound in activity. Pending supportive data, GBPEUR may see continued positive momentum.