Economic Data and Central Bank Expectations.

• USD remains subdued after significant losses last week, with the index below 103.00 and the 10-year Treasury yield above 4%.
• GBP leads among G10 currencies in 2024 on optimism about the UK’s economic recovery, supported by potential BOE rate stability.
• EUR struggles as Eurozone’s Q4 stagnation highlights trade decline, despite positive data from Germany.
• Pound could face pressure from disappointing UK wage data, while Euro benefits from less anticipation of ECB rate cuts.
• Market sentiment is influenced by expectations of potential Fed rate cuts contrasting with ECB’s cautious stance, impacting currency dynamics.

USD: The US Dollar (USD) remains subdued on Monday following significant losses against major counterparts last week. The USD Index hovers below 103.00 after a more than 1% decline, while the 10-year US Treasury bond yield stays above 4%. Economic data releases are scant at the start of the week. The latest Nonfarm Payrolls (NFP) report showed a rise of 275,000 jobs in February, beating expectations, but revisions to January figures tempered enthusiasm. Despite positive technical indicators, Pound Sterling could face pressure if UK wage data disappoints or US inflation data overshoots, potentially reversing recent gains.

GBP: The British Pound leads G10 currencies in 2024 amid optimism about the UK economy’s recovery from an H2 2023 recession. Market sentiment favors the Bank of England holding off on interest rate cuts, contrasting with expectations for easing from other major central banks. However, upcoming UK wage data could trigger a pullback in Pound exchange rates if it falls short of expectations. The Pound’s strength reflects growing confidence in the UK’s economic resilience, with analysts suggesting it could maintain its momentum against the Dollar.

EUR: The eurozone economy’s stagnation in Q4 2023 was attributed to a decline in trade, according to Eurostat data. Despite gains in government spending and fixed investment, the outlook remains modest, with the European Central Bank revising down its growth forecast. Positive data from Germany, including industrial production and producer prices, provided some support for the euro. Market sentiment is influenced by expectations of possible interest rate cuts by the Federal Reserve, contrasting with less anticipation for similar moves by the ECB, contributing to the euro’s resilience against the weakened US dollar.