26/07/2024
Written by: Ian Morley
Summary:
The morning saw initial USD gains dissipate during European trading hours due to mixed US data. While Q4 GDP was revised down to 3.2%, consumer spending and core PCE were revised higher. Equities recovered, leading to a weaker USD amid improved risk sentiment. Despite hawkish commentary from the BoE and ECB, focus remains on upcoming US inflation data. Additionally, the German economy showed signs of stalling with weaker-than-expected Retail Sales data, while the Japanese Yen saw gains following BOJ comments on wage settlements.
Market Insight:
Currency markets experience low volatility as traders await crucial US and EU inflation data. GBPUSD has traded in its tightest range since 2019, with interest rate cut projections aligning between the US and UK. With global interest rate cuts anticipated in Q2 and upcoming US and UK elections, the year may be divided into two halves. Despite higher bond yields, equity markets have disregarded the safe-haven dollar’s yield advantage.
Analysis:
Ahead of today’s core PCE inflation data, markets have been relatively quiet, with expectations of increased volatility. Forecasts suggest month-on-month inflation may rise to 0.4%, the highest since January 2023. Based on earlier CPI and PPI numbers, a higher inflation outcome could strengthen the USD, potentially impacting equity markets negatively.