Global Markets Eye BoE Stance And PMI Data Amid Easing Tensions And Gold Dip

The Pound to Dollar exchange rate (GBP/USD) posted sharp losses on Friday with dovish comments from Bank of England (BoE) Deputy Governor Ramsden dragging the UK currency lower.

GBP/USD slumped to 5-month lows near 1.2360 before a tentative recovery to 1.2380 on Monday.

The Pound to Euro exchange rate (GBP/EUR) also hit 3-month lows near 1.1610.

Markets will be monitoring any BoE comments closely during the week to assess whether other members back Ramsden’s stance on easing inflation pressures or whether there is a pushback.

Overall risk conditions improved in Asian trading on Monday with relief that there had been no increase in Middle East tensions during the weekend.

Gold prices dropped sharply during the session amid a dip in demand for risk assets and this also sapped potential dollar demand in global markets.

The Pound overall should secure net benefit if there is a net improvement in risk conditions and gains in equities.

TD Securities commented; “Markets continue to unwind the flight to quality bond bid. This easing in tensions should bring the market’s focus back to the data.”

In this context, markets will be looking at the data to assess the outlook for the global economy and the relative performance between major economies.

The latest PMI business confidence data will, therefore, be a key factor this week.

As far as the Euro-Zone is concerned, the German manufacturing index will be important after another dismal reading last month.

For the Euro-Zone as a whole, a slightly stronger readings are expected for the manufacturing is expected, but still in contraction with a slightly stronger rate of growth for the service-sector.

Market expectations are for little net change in the UK readings with manufacturing and services sectors in expansion territory.

Strong data and evidence of persistent inflation pressures would make it more difficult for the BoE to justify an early cut in interest rates.

Expectations are for little net change in the US indices with limited net gains for both manufacturing and services.

The US will release its latest PCE prices data on Friday. Consensus forecasts are for an increase in core prices of 0.3% for March with the year-on-year increase edging higher to 2.6% from 2.5% previously.

A weaker-than-expected reading would trigger some fresh hopes for a Fed rate cut at the July policy meeting.

The Federal Reserve will now be in the blackout period ahead of the early May policy meeting and there should be no official comments.

The Bank of Japan will announce its latest policy decision on Friday with no policy change expected.

Some Analyst Quotes – 22 April 2024

Barclays Research:

GBP came under pressure on Friday evening following on from dovish commentary from BoE member Ramsden. Ramsden suggested that UK April CPI data is likely to be softer than the markets currently expect, and should show the UK converging with the EU, who have lower inflation than the UK currently. A weaker CPI print could lead to the BOE cutting rates faster than the markets expect. The market is now pricing in 13.5bps of cuts for the June meeting up from 7bps earlier last week.

Lloyds Bank:

“The US dollar has fallen against most of its peers in response to the moderation in geopolitical tensions. As a result, GBP/USD has started the week marginally higher, following a sharp fall last week. However, it still remains below the 1.24 level.”