Currency Chronicles: USD’s Resilience, EUR’s ECB Dilemma, and GBP’s Fed Dance.

USD: The U.S. dollar maintained its upward momentum, propelled by a resurgence in Treasury yields. San Francisco Federal Reserve President Mary Daly’s stance, emphasizing a reluctance to consider immediate rate cuts, has accentuated the division between dovish and hawkish Fed members. All eyes are now on Fed Chair Powell’s upcoming speech at Spelman College, seen as a crucial platform to provide clarity on the monetary policy outlook. If Powell leans towards hawkish sentiments, endorsing the prospect of higher interest rates for an extended period, this could further bolster the dollar’s nascent rebound. Conversely, a lack of pushback against dovish market pricing, where many rate cuts for 2024 are already priced in, may exert downward pressure on yields, subsequently weighing on the greenback.

EUR: Market participants keenly await Powell’s speech, as it has the potential to influence the dynamic between the euro and the U.S. dollar. A hawkish tone from Powell favoring prolonged higher interest rates in the U.S. could uplift the dollar, creating a contrasting scenario against dovish market pricing. In the Eurozone, mounting expectations of an ECB rate cut in April, along with a total of 115 basis points in cuts for 2024, present an uncertain landscape. Today’s inflation release adds to the growing sense that the European Central Bank may trim borrowing rates sooner than previously anticipated.

GBP: The British pound finds itself intricately linked to the fluctuations in the U.S. dollar as investors adopt a less hawkish stance on the Federal Reserve’s interest rate trajectory. Despite the positive surprise in U.S. GDP data during yesterday’s trading session, the market remains steadfast in its bearish outlook on the USD. This sentiment is fueled by dovish Fed commentary and the pricing in of 115 basis points in cumulative rate cuts by December 2024. The week’s focal points include the core PCE price index, a crucial metric in the Fed’s inflation assessment, and scrutiny of jobless claims to discern whether recent labor market weakness is a transient blip or a more persistent trend. Amid these uncertainties, the pound may find additional support should the actual data align with forecasts.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.