FX Outlook: Inflation, Growth Data & Rate Cut Expectations in Focus.
USD – Remains fragile overall despite a bounce on strong payrolls, with markets focused on inflation and growth data to assess the timing of potential rate cuts.
EUR – Slightly softer in the near term and largely dollar-driven, with key survey and PMI data plus ECB commentary in focus.
GBP – Trying to stabilise after hawkish comments from the BoE’s Chief Economist, but softer wage and inflation data expectations are keeping rate-cut bets alive.
USD:
The dollar moved higher last week following strong payrolls data, but it remains in a broader weak position. It showed resilience after Friday’s CPI report came in softer than expected, increasing expectations of rate cuts while the dollar held steady.
Attention now turns to tomorrow’s FOMC minutes, which should give clearer guidance on how likely a rate cut is over the next few meetings. On Friday, markets will focus on core PCE inflation and the first estimate of Q4 GDP. Growth is expected to cool to 2.8% annualised, down from a strong 4.4% in Q3.
EUR:
The euro is trading slightly weaker across the board this morning, with EUR/USD continuing to be primarily dollar-driven.
This week brings a couple of key data releases, including the ZEW survey tomorrow and PMI figures on Friday. Markets will also listen closely to comments from ECB officials, including Francois Villeroy de Galhau and Joachim Nagel, for further policy signals.
GBP:
Sterling has edged higher after Huw Pill suggested UK interest rates may have been cut too quickly. However, expectations for softer data this week are limiting upside.
Private wage growth is forecast to fall to 3.4%, unemployment is expected to rise, and CPI inflation is projected to ease from 3.4% to 3.0%. Markets are currently pricing in a 74% probability of a rate cut at the March meeting, keeping sterling’s gains in check.