Economic Update
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GBP strengthens after BOE holds rates
9 minute read23 September 2024
GBP
Last week, sterling hit 30-month highs against the US dollar and 25-month highs against the Euro, as the Bank of England (BoE) voted 8-1 to hold the bank rate at 5.00%. BoE Governor Andrew Bailey justified the unchanged rate, stating that it is "vital that inflation stays low" and that the BoE needs to "be careful not to cut [rates] too fast or by too much." This came a day after UK inflation was released at 2.2%, in line with forecasts.
While controlling inflation is crucial, with GDP coming in at 0.0% this month, the BoE are expected to remain vigilant not to stifle economic growth. Close attention will be on the BoE's next meeting in November, where, at the time of writing, a 25-basis point rate cut is priced in at 115%. Last week also saw the release of UK retail sales data, which came in at 1.0% above the forecasted 0.3%. However, today's (Monday) UK Manufacturing and Services PMI figures fell further than expected, to 51.5 and 52.8 respectively, compared to forecasts of 52.3 and 53.5.
EUR
Last week was relatively quiet for the Euro, with any volatility in EUR pairings being driven by GBP and USD movement. The only notable data-point was the German ZEW Economic Sentiment, which came in below forecasts, following the European Central Bank's (ECB) decision to cut rates by 25-basis points, on September 12th.
This week, the Eurozone's economic data calendar is slightly busier. Today (Monday), the Eurozone's Flash Manufacturing and Services PMIs came in at 44.8 and 50.5 respectively, below the forecasted 45.7 and 52.3. French and German PMIs also missed expectations.
Looking ahead to the rest of the week, an indicator for Germany’s economic activity, the ifo Business Climate Index will be released on Tuesday, and ECB President Lagarde will speak at the European Systemic Risk Board Annual Conference in Frankfurt on Thursday.
Spanish Flash CPI YoY will be released on Friday and is expected to come in at 1.9%. On Wednesday, the US Federal Reserve (Fed) cut rates by 50-basis points, marking its first easing since the pandemic. This decision to cut by half a percentage point was only priced in at around a 50/50 chance, and led to a sell-off in the US dollar, which weakened 0.8% against GBP and 0.3% against EUR. In a press conference, Fed Chair Powell, commented “The US economy is in a good place and our decision today is designed to keep it there”, but he was careful not to come off too dovish, adding “No one should look at this and see this is the new pace”. Markets are now pricing in 2.9 further cuts by the Fed before the end of the year, and it's currently unclear whether they'll cut by 25-basis points or 50-basis points at their next meeting on November 7th. US Retail Sales were released last Tuesday at 0.1%, beating forecasts of -0.2%, and Unemployment Claims came in at 219K, below the 230K forecast, on Thursday. This week, we’ll see a flurry of data releases for the US, including Flash Manufacturing and Services PMIs today (Monday), which are expected to come in at 48.6 and 55.3 respectively. Tomorrow (Tuesday), CB Consumer Confidence is forecasted to rise from 103.3 to 103.5. On Thursday, US Final GDP QoQ is expected to fall slightly from 3.0% to 2.9%, and on Friday, Core PCE Price Index MoM is expected to remain at 0.2%. Several key FOMC members, including Chair Powell, are also due to speak on Thursday evening at the US Treasury Market Conference in New York. USD
This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.
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