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The pound suffered from assumptions that the Bank would cut rates to 3.5% next month.
The implied odds of the Bank of England cutting interest rates at its March meeting surged beyond 80% this morning as fresh data pointed to a weakened jobs market and cooling price pressures.
Inflation fell off a cliff in January. The headline rate dropped from 3.4% to 3%, driven largely by cooling petrol prices and airfares, as well as a modest fall in core inflation from 3.2% to 3.1%. Markets had actually expected this fall, which meant sterling was unmoved in early trading after broad weakness on Tuesday.
The pound still felt the weight of these shifting rate expectations. There could be more weakness on the way with retail sales and PMI data both arriving early on Friday. Remember that can secure your profit margins and cashflow today with risk management tools like a forward contract. If you already have an account with us, simply call your account manager on 020 3918 7255 and they will be able to help you.
The one crumb of comfort for UK PLC yesterday was the stoicism in bond markets. Those famously skittish investors largely brushed off the unemployment data. Yields, which move inversely to their price, eased slightly on both the long and short ends of the curve.
Wednesday is a busy one across the Atlantic, with housebuilding data due and a key durable goods report. If the economist forecasts are anything to go by, we could see a sizeable reversal to last month’s manufacturing uptick, perhaps as much as a 2-4% decline.
The highlight of the day for American markets remains the release of the latest minutes from the Federal Reserve’s rate-setting panel. In the highly politicised environment (and after recent data sent somewhat mixed messages about the state of the economy), currency markets have a tendency to hang on every word that comes out of an FOMC governor’s mouth.
GBP: Bruising start to Lent
The traditional time of cutting back started early for sterling. The pound weakened by close to a cent against both the US dollar and the euro on Tuesday, as increasingly confident predictions of a March rate cut confirmed its downward trajectory.
GBP/USD: the past year
EUR: Consumer data drag
Despite strengthening against the pound, the euro had a tougher time against the US dollar after the German ZEW economic sentiment survey came in below expectations. That was an interesting data point to pair with the forecasted 5% dip in the German population by 2050 – a much steeper fall than previously expected.
GBP/EUR: the past year
USD: ‘Warsh trade’ wobble
It was a positive start to the shortened week for the US dollar. Regardless, there are significant concerns about both the dollar’s long-term viability and the independence of the Fed. According to Bank of America, an increasing number of investors expect the currency to weaken alongside a monetary framework that exists to support the White House’s growth agenda.
EUR/USD: the past year
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