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Back-to-back interest rate decisions mean the pound and the US dollar face scrutiny on Thursday.
After the Federal Reserve decided to keep interest rates on hold last night, focus shifts to the Bank of England (BoE) this lunchtime. Markets believe a quarter-point cut to interest rates is as good as a done deal, yet the risk lies in policymakers outlining deeper, faster cuts than have been expected.
Good news for people with mortgages and businesses but less so for savers and sterling, which has struggled to gain a real foothold against the euro this week. Reports that US President Donald Trump is set to announce the framework to a trade deal with the UK today changed that dynamic and sent GBP/EUR up by the best part of half a cent.
Federal Reserve chairman Jerome Powell faced up to the media spotlight last night. As expected, Powell was in a cautious mood and signalled the need for more clarity to make sensible policy decisions. Since the Fed’s last meeting, “the risks of higher unemployment and higher inflation have risen”, according to Powell.
Germany’s trade surplus widened by more than anticipated to €21.1bn in March. That is the largest trading surplus since December with exports surging to an eleven-month high. Bear in mind that these numbers do not include the impact of the 2 April “Liberation Day” tariffs.
After a whopping 0.5% fall last time out, the April edition of Halifax’s house price index showed renewed monthly growth. The average property will now set you back £297,781, equivalent to a 3.2% increase from a year ago.
China’s central bank yesterday confirmed a series of measures designed to contain the fallout from a trade war. The People’s Bank of China will cut its benchmark interest rate by 0.5% and inject over £100bn in reserves into the nation’s banking system.
Geopolitical concerns are again seeping into sentiment and impacting currency market dynamics. Further escalation in the conflict between India and Pakistan has raised the regional temperature and contributed to what was a largely defensive Wednesday in the global financial sector.
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GBP: The first of multiple cuts?
Ask the majority of the world’s leading banks and research desks and they will tell you the Bank of England will be busy cutting into the back end of this year. That raises the pressure on sterling, which could well fall against its peers in a low-rate environment.
GBP/USD: the past year
EUR: Dodging Merz misstep
Tuesday’s drama in the German Bundestag saw the euro fall against its peers. A quick resolution to that brewing crisis saw it recover just as quickly, as euro investors welcomed the coronation of a government committed to boosting infrastructure and defence spending.
GBP/EUR: the past year
USD: Supported by the Fed
The Federal Reserve has propped up the dollar in recent weeks, with markets believing that Jerome Powell and co are more intent on stemming inflation than fretting about labour dynamics. This cautious approach has allowed the US dollar to stabilise, even as the issue of trade rumbles on in the background.
EUR/USD: the past year
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