USD continued to hold onto gains despite PPI numbers coming in a bit lower than expected. Both GBPUSD and EURUSD carved out new 2024 lows as a result. The ECB left rates unchanged as widely expected, but pretty much confirmed a 0.25% rate cut in June, causing weakness on the EUR.
ECB member Yannis Stournaras put out a dovish stance stating that the ECB shouldn’t be afraid to diverge from the Fed in terms of monetary policy, and reiterated that four rate cuts are possible this year – current market pricing suggests three rate cuts.
*Daily move - against G10 rates at 7:30am, 12.04.24
** Indicative rates - interbank rates at 7:30am, 12.04.24
UK GDP numbers out this morning showed the economy grew for a second month in February, adding to the idea that the UK is recovering from last year's recession – but worth noting that growth was only 0.1%.
The market narrative behind a divergence in growth and rate policy between the US and UK/EU continues to build, and we are slowly seeing that develop in the FX space with the gains in USD. Looking at the charts we would be looking for a close below the 2024 lows on GBPUSD and EURUSD, before we see conviction in the markets to drive the currency pairs towards the lows seen back in November 2023. Hawkish Fed speak could add to additional USD gains. The combination of the ECB meeting yesterday and comments from the ECB continues to raise the risk that the ECB will be the first to cut rates, which is putting the EUR on the backfoot so far this morning.
With USD charging higher on higher yields and diverging growth and rate outlooks, we will be closely watching how GBPUSD and EURUSD will be closing today, with the 2024 lows seen as the key benchmark. A weekly close below this level opens up the prospect of trading towards the November 2023 lows.
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