BoE Caution, USD Strength, ECB Dilemma.

• Bank of England cautious about cutting interest rates, waiting for data alignment.
• GBP held up well against USD in Q1 due to higher UK inflation.
• Mixed recent data, including stagnant wage growth, adds complexity to BoE’s decisions.
• USD benefits from safe-haven demand and Fed’s delay in easing cycle.
• ECB leans towards a rate cut ahead of Fed due to Eurozone economic challenges.

GBP: The Bank of England appears hesitant to cut interest rates just yet, waiting for data to align with targets. Market projections suggest a possible rate cut in August, fully priced in by September’s end. Despite a late March dip, the pound stood strong against the US dollar in Q1, buoyed by higher UK inflation, implying longer maintained rates above 5%. Mixed recent data, especially stagnant wage growth, adds complexity to the BoE’s deliberations. The surprise uptick in CPI momentarily lifted GBP/USD, offering a respite from its decline. The day’s close will indicate if the downward trend persists.

USD: USD benefits from safe-haven demand amid Middle East uncertainty and Fed-ECB policy disparity, supporting its strength. GBP/USD eyes 1.2500 as potential resistance, needing a sustained breach for a significant rebound. While the DXY index retreated from highs, fueled by lower Treasury yields, its bias remains upward. Fed signals of delayed easing due to robust economic data and inflation pressures reinforce this trajectory.

EUR: The Fed’s postponement of rate cuts due to strong economic indicators contrasts with ECB’s inclination for a June cut ahead of the Fed. This divergence pressures the Euro, especially as Eurozone inflation falls below expectations. The ECB’s April meeting avoided commitment to a rate path, opting for a data-driven approach amidst economic uncertainties. This flexibility enables the ECB to adapt to evolving conditions, particularly amid geopolitical tensions.